Rising global oil prices to increase inflation

Rising international oil prices and the impact on domestic fuel prices are expected to exert moderate upward pressure on inflation.

Central Bank Governor Dr Patrick Njoroge said although global growth is expected to strengthen this year, there were uncertainties because of the United States economic and trade policies, rising international oil prices and the pace of monetary policy normalisation in advancing economies.

Briefing the press Tuesday, Njoroge, however noted that the domestic foreign exchange market which remains stable is supported by a narrowing in the current account deficit to 6.1% of GDP in the 12 months to March 2018 from 6.7% 2017.

He disclosed that lower imports of food and the Standard Gauge Railway related equipment undertaken this year are also expected to moderate the impact of higher international oil prices on the petroleum products import bill.

“This is expected to narrow further to 5.4% of GDP this year, supported by stronger growth in agricultural exports, higher diaspora remittances and tourism receipts,” said Dr. Njoroge.

The Governor said the month-on-month overall inflation fell to 3.7% in April 2018 from 4.2% in March as a result of lower food prices, and in particular Irish potatoes, cabbages and sugar.

“The decrease in food prices outweighed the increases in energy prices, while that of non-food-non- fuel inflation rose slightly, but remained below 5%,” he noted.

On the CBK foreign exchange reserves that have remained high at all times, Dr Njoroge said it is currently standing at US$ 9,049 million, thereby providing an adequate buffer against short-term shocks in the foreign exchange market.

He at the same time announced that the private sector has also grown by 2.8% in the 12 months to April 2018, which is slightly higher than 2.1 percent in February 2018, which was mostly on lending to the manufacturing, building and construction, finance, insurance and trade sectors, which grew by 10.1%, 14.1%, 10.1% and 5.0% respectively.

Concerning the banking sector, the Governor said the sector remains stable and resilient.

A recent CBK survey revealed that a significant share of the Non-Performing Loans was caused by the delayed payments from the government and the private sector.

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An Economic Survey 2018 that was released recently shows that the economy was resilient in 2017, as GDP grew at 4.9%, despite the adverse effects of the drought on agricultural production, weak private sector credit growth and a prolonged elections period.