Kenyan Central Bank Head sees growth shrugging off election

The Kenyan economy is “resilient and diversified” enough to shrug off any potential negative effects from elections next August, with growth likely to accelerate in 2017, Central Bank of Kenya Governor Patrick Njoroge said.

The prospects for East Africa’s largest economy are “very good,” even as analysts flag investor concerns about a possible slowdown in output because of shrinking private-sector credit growth and the potential for unrest during the vote, he said in an interview Thursday in the capital, Nairobi. Njoroge travels to the U.S. next week where he’ll discuss the outlook for the economy at the International Monetary Fund’s annual meetings in Washington.

“Our economy is extremely resilient because it is very highly diversified,” Njoroge said at his office in downtown Nairobi. Investment in infrastructure such as the $3.2 billion standard gauge railway line and other capital projects is helping to boost output and the economy’s global competitiveness, he said.

Kenya’s $61 billion economy will probably grow 6 percent this year, with inflation unlikely to breach the government’s target band of 2.5 percent to 7.5 percent, Njoroge said. Growth last year was 5.6 percent. He declined to specify at what rate gross domestic product may expand in 2017.

“It’s much higher than 6 percent,” he said.

Rate Caps

Kenya’s statistics office released data on Friday showing that growth accelerated to 6.2 percent in the second quarter from 5.9 percent in the previous three-month period. Njoroge said he expected the figure to show a slowdown, though it would be “still good.”

The central bank is currently focused on implementing interest-rate limits introduced by the government on Sept. 14 as it monitors the impact on financial markets and the economy, Njoroge said. President Uhuru Kenyatta signed the law last month that capped banks’ lending rates at 4 percentage points above the central bank rate to try to stimulate lending. Growth in private-sector credit extension has slowed every month during the past year, to a rate of 7.2 percent in July, the slowest pace since 2007, according to central bank data.

The central bank is probing its credit-growth data to ensure it’s correct, Njoroge said.

“Such a slowdown does not match what we are seeing in the real sector,” he said. “There’s a sort of a disparity between the slowdown in private-sector credit growth and the robust growth that we’re seeing in the real economy. It makes us even more suspicious of the numbers.”

Rates Corridor

Njoroge has said the introduction of rate caps has made monetary policy more complex and stalled plans to introduce interest-rate corridors this month to better guide interbank-lending rates. It’s one of a series of measures the bank is planning as changes in the way monetary policy is conducted.

“In the long-term, we want monetary policy to be more directed toward inflation-targeting, but modern inflation targeting,” he said. “Central banks cannot just be focused on inflation, they have to also be concerned about financial stability and more generally they have to be concerned about the pulse of the economy.”

Njoroge declined to be drawn on whether there was scope for the central bank to ease monetary policy further. The Monetary Policy Committee has cut the benchmark rate twice this year to 10 percent.

After a 50 basis-point cut in interest rates earlier this month, Njoroge said inflation was set to ease as price pressures are waning. The rate of consumer-price increases slowed to 6.3 percent in September from an 8 percent peak at the end of 2015.