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Kenya’s economic forecast takes a dip

March 30th 2023, 1:10:13 pm
An aerial shot of the Nairobi Expressway in Kenya [Photo: Antony Trivet]
  • Kenya's economy is expected to grow at a 5.8% annual pace in 2023, down from a 6.1% annual rate previously predicted.
  • The president of Kenya noted that his administration was collaborating with Kenya’s Central Bank to reactivate the interbank foreign currency market.
  • The bank's foreign exchange reserves, which now stand at $6.4 billion, or 3.6 months of import cover, are expected to climb by $1.4 billion by the end of April.

Kenya's economy is likely to develop at a 5.8% annual rate in 2023, down from a 6.1% annual rate originally forecast, according to Central Bank Governor Patrick Njoroge on Thursday.

Kenya, like the rest of the area, is recovering from the region's worst drought in four decades. It has also experienced an increase in the pricing of basic goods, as well as the impacts of a weaker currency and a large public debt load, as reported by the American news agency Reuters.

"We scaled down agricultural growth which has brought down our projection for overall growth in 2023," Njoroge told a news conference.

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President William Ruto said last week that the government was collaborating with the central bank to reactivate the interbank foreign currency market, which had been dormant in previous years due to what traders claim was harsh monitoring by the central bank.

The central bank has frequently denied any excessive market intervention, claiming that the regulator was only maintaining discipline. It claims to have no preferred shilling rate and merely intervenes to decrease volatility.

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The lack of a dynamic interbank foreign exchange market has been blamed in part for a severe scarcity of hard currency, forcing the government to seek extended credit durations for crucial imports like gasoline.

The restoration of interbank trade in the previous two weeks, according to Njoroge, has smoothed out volatility in the shilling exchange rate.

"So, yes, the journey has started and already you can see a positive outcome in terms of the ... reactivation of the interbank market," he said.

The bank's foreign exchange reserves, which now stand at $6.4 billion, or 3.6 months of import cover, are expected to climb by $1.4 billion by the end of April, with more support from the International Monetary Fund expected by the end of June, according to Njoroge.

The central bank hiked its benchmark lending rate (KECBIR=ECI) to 9.50% on Wednesday, up from 8.75% earlier, and stated that monetary policy might be tightened further in expectation of increasing inflation.

The Kenyan economy grew by an estimated 5.6% in 2022.

Chinedu Okafor
Chinedu is a Senior Reporter at Business Insider Africa with 5 years experience creating profoundly engaging and insightful content.

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