Lower oil prices to check inflation in Kenya

January 15
6:10 PM 2016

Lower oil prices may help Kenya control inflation rate. The annual inflation rate surpassed the government's target limit of 7.5 percent to eight percent in December 2015. Kenya's Monetary Policy Committee is scheduled to meet next week to discuss measures to support the economic growth. Lower oil prices help Kenya to save significantly on import bill. 

The Kenyan government sets a target band of inflation to be in the range of 2.5 percent to 7.5 percent. But, the inflation rate soared to eight percent mostly led by prices of alcoholic beverages and tobacco. The construction activity is support the Kenyan economy and growth rate is expected to be six percent in 2016. 

Bloomberg reports that Kenya is investing in ports, roads and power generation. The Kenyan government is aiming to bring down the cost of doing business and enhancing economy growth rate. Treasury Principal Secretary Kamau Thugge said that inflation rate breached the target band. 

The oil price fall is good news and bad news for the African nations. It's bad news for African countries, which produce oil and earn export revenues. And it's good news for African countries like Kenya. World Bank forecasts economic growth rate of six percent in 2016 from 4.7 percent in 2015 owing to lower oil prices.

Kenya depends heavily on oil imports. Several industrial sectors also depend on oil and gas imports. Lower oil prices help Kenya to save on import bill by over $10 billion. Kenya can also leverage on lower oil prices to bring down inflation rate by five percent, according to Soko Directory

The Treasury forecasts the economy growth rate to be six percent in 2016 from 5.5 percent in 2015. The lower oil prices and encouraging activity in the construction sector are supporting the economy growth. These factors will also help manufacturing sector grow, observes Thugge. 

Indicating 12-year low, the West Texas Intermediate (WTI) is hovering at $29.93 per barrel. Considering the lower oil prices, Energy Regulatory Commission (ERC) has announced marginal decrease in retail oil prices. Super petrol price per liter Sh 1.81 (Shilling), as reported by Daily Nation. The government has been criticized for not passing the benefit of oil price drop to consumers.  

The Treasury is in the process of finalizing its budget. The new budget will reveal the government's support schemes and policies for economy growth. Thugge declined to comment on the Financial Times report saying Kenyan Treasury was considering a proposal to offload 15-year Eurobonds and 20 year Eurobonds in 2016. 

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