Kenya’s headline inflation is projected to soar to 8.6 per cent in 2023 from the current 6.8 per cent before averaging 5.9 per cent in 2024, the African Development Bank (AfDB) has said.

The AfDB attributes this projection to several factors, primarily focusing on the supply side dynamics, which will be key in the formation.

Going forward, the lender is optimistic that the pressures on Kenya’s exchange rate are set to ease in a move that will mark a positive turn for the country’s economic landscape.

“On the supply side, its assumed that the pressures on the exchange rate will recede,” AfDB said in a statement. This follows an anticipated slow down in monetary policy tightening in advanced countries.

“Kenya is expected to capitalise on this through prudent policy tightening,” the bank noted.

Positive outlook

This positive outlook is expected to be a consequence of the deceleration in monetary policy tightening in advanced economies, thereby alleviating some of the external pressures.

AfDB says Kenya is well positioned to capitalise on this favourable development through the implementation of prudent policy tightening measures.

By adopting a cautious and strategic approach to policy adjustments, Kenya can navigate the changing global economic currents effectively leading to the stabilisation of the domestic economic environment.

The lender highlights the global context in its analysis and suggests that this slowdown will likely suppress global risk-averse sentiments and narrow the interest rate differentials across countries.

Kenya’s proactive stance in implementing measured policy adjustments is seen as a means to navigate this evolving global financial scenario effectively. By doing so, the country aims not only to mitigate inflationary pressures but also to leverage emerging opportunities for economic growth.

The bank’s forecast suggests that Kenya’s economic policymakers will play a pivotal role in steering the country towards stability and growth amid the evolving dynamics of the international economic landscape.

The bank’s emphasis on prudent policy measures and the potential alleviation of external pressures underscores the importance of strategic economic management in the pursuit of sustained growth and stability. As the AfDB unveils its projections, it reinforces the importance of policy flexibility and adaptability in the face of changing global economic conditions.