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Kenya eyes inflation rate of 5 pct by 2014/15

17 January 2012, 16:52

Nairobi - Kenya plans to cut inflation to five percent by 2014/15 (July-June) through austerity measures to reduce its budget deficit, accompanied by a tight monetary stance, Finance Minister Uhuru Kenyatta said on Tuesday.

Year-on-year inflation rose for 13 straight months to peak at 19.72 percent last November, before easing to 18.93 percent in December after the central bank raised rates aggressively and good rainfall pointed to an improvement in harvests.

"The objective of the government is to stabilise the fiscal and current account imbalances by tightening fiscal and monetary policy to slow down inflationary pressures and exchange rate depreciation," Kenyatta said.

The shilling fell against the dollar for most of last year mainly due to a widening trade gap, amplified by global increases in fuel prices and a drought that ravaged the Horn of Africa, feeding through to higher inflation rates in the region.

Kenyatta said the government aimed to lower its budget deficit to 5.1 percent by 2014/15 from this fiscal year's 6.1 percent.  

Last month, the cabinet approved cuts in government expenditure including official trips abroad, advertising, hospitality and purchase of new vehicles.

"We want to cut as much as possible especially in non-priority areas so that we can be able to release additional funding to priority areas like the security situation," Kenyatta said.

The Treasury expects to seal a deal for a $600 million short-term external loan this month to plug its budget deficit in this fiscal year after it shelved plans to issue a Eurobond.

Kenyatta affirmed earlier projections by the planning ministry expecting the country's gross domestic product to grow by at least 5 percent this year on the back of growth in key sectors of the economy.

"We are optimistic that the economy will continue to remain resilient and the real GDP growth for 2012 will be above 5 percent with most of it coming from the expansion in agriculture, tourism and exports tapping into the expanded market in the region," Kenyatta said.


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