The executive directors commended Kenya’s strong economic growth and satisfactory programme implementation despite challenges posed by the severe drought in the Horn of Africa and higher than expected food and fuel prices.

However, the officials noted that combination of external shocks and strong domestic demand, fueled by rapidly expanding credit, has led to a sharp increase in inflation, a widening current account deficit, and currency depreciation.

The inflation rate has been on the increase in the past 14 months and only reduced slightly this year to 18.93 per cent from a high of 19.72 per cent.

Directors welcomed the recent decisive steps taken to rein in inflation and noted that further tightening of monetary policy should anchor inflation expectations.

They also commended the Central Bank of Kenya for raising its policy rate to help absorb liquidity and discourage excessive credit growth and demand for foreign exchange. A gradual accumulation of international reserves and maintaining the existing floating exchange rate regime will mitigate the impact of external shocks, the officials said.
Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the institution’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board bilateral discussions with members every year.