Politics
Central Bank of Kenya Ready to Support the Shilling
Terror fears have already hit tourism hard, and the danger now is that other sectors that depend on expatriate staff or foreign businesspeople traveling to Kenya will be affected as executives or their human resources departments decide that the country is too dangerous to work in.
From a political perspective, NKC Independent Economists has considered Kenya a ‘low’-risk country since the success of the 2013 elections under the new constitution, and there has been no reason since then to re-examine that rating. Most recent political news from Kenya has been about insecurity resulting from the terror attacks by members or sympathisers of Somalia’s Al-Shabaab, which have killed more than 100 people over the past 18 months.
There definitely has been an increase in terrorism since the beginning of the year, and the tourism business (especially in Coast Province) has already suffered, but it is not yet serious enough to threaten overall political stability. An uptick in perceived political risk stemming from terrorist activities may filter through to shilling weakness as tourism dollar inflows falter.
However, pursuant to its goal of maintaining exchange rate stability, the central bank has in recent weeks illustrated its willingness to absorb excess liquidity in the interbank market in support of the local unit, which we expect to cushion the downside risk to the shilling exchange rate.
Nonetheless, stemming from our short-term inflation forecast, government borrowing costs may edge higher during the second half of 2014. On the monetary front, upside risks to inflation in the short term include private sector credit growth as well as an increase in food price inflation stemming from tight regional supply and below-average agricultural production.
Source: CNBC Africa
