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Kenya almost-doubles inflation target

23 November 2011, 17:15

Nairobi - Kenya's central bank changed another key policy aim by almost-doubling this fiscal year's inflation target to 9 percent, just weeks after being driven to make a huge rate rise to combat soaring inflation and save the plunging shilling.

Tuesday's unveiling of the new target, for the year running July to June, followed months of trenchant criticism of the bank for not taking aggressive action to stop the shilling's slide on the back of double-digit inflation and a yawning balance of payments gap.

At the height of the crisis last month the shilling was down more than 25 percent against the dollar this year with some investors unwilling to hold it.

The bank vowed on Tuesday that achieving price stability was its main goal, further underscoring its commitment to fighting inflation and extreme volatility in the exchange rate, ahead of a general election next year. Its inflation target for the year had been 5 percent.

Kenya's year-on-year inflation rate rose to 18.91 percent in October from 17.32 percent a month earlier as food, electricity and fuel prices all went up.

"In pursuit of this objective, the bank formulates and conducts monetary policy to contain overall inflation at the government target of 9 percent for 2011/12 financial year with a deviation of 2 percentage points on either side," Governor Njuguna Ndung'u said in the bank's October newsletter.

Analysts said the bank had little choice but to raise the target after sustained pressure on prices of food and energy, as well as the credibility gap created by the earlier widely held view in the market that central bank was only pre-occupied by economic growth and was flat-footed by inflation.

"It is really just a reflection of the problems faced by the CBK. Certainly, external or supply side shocks have had a great impact on inflation, and this was beyond the control of the MPC (monetary policy committee)," said Leon Myburgh, sub-Sahara Africa strategist at Citi in Johannesburg.

- Reuters

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