Kenya cuts 2011 growth forecast

Kenya's planning minister revised down on Wednesday the East African country's growth outlook to 4 percent this year from 4.2-4.5 percent on the back of a weak performing shilling and exchange rate volatility. The economic slowdown has been further driven by soaring inflation in east Africa's biggest economy - at 17.3 percent - exacerbated by the heavy importation of food commodities due to drought and high fuel prices.
"The first quarter was very good. We got 4.8 percent and we thought we would continue that trend. I can now see the average (for the year) coming to about 4 percent," Planning Minister Wycliffe Oparanya told Reuters in an interview. "The recent exchange rate in fact worsened the situation. The weakening of the shilling meant imports were going to be very expensive for the country," he said.
The battered local currency has lost 19.6 percent this year after hitting a new low of 107 on October 11, but the central bank's latest round of monetary tightening measures are expected to bear fruit towards the end of the year, Oparanya said. The Central Bank has intensified its absorption of shillings to tighten liquidity, after it halved banks' foreign reserves to 10 percent. A 4 percent raise in its benchmark rate is also expected to help the shilling.
Oparanya said the blend of remedies to curb the shilling's volatility would eventually cool inflation and get the economy back on track, but blamed the central bank for its slow response. "I think if they (the central bank had) acted fast enough, we would have contained the forex instability by raising the base lending rates much earlier in the year," he said.
"We have started negotiation with the IMF so that we get foreign exchange support. I hope that will stabilise the dollar ... maybe at 97 (to the shilling) from the 107 it was, fuel prices should be adjusted downwards." The government is seeking an extra $250-$350 million from the IMF, over and above a $500 million extended credit facility agreed in February this year. The east African nation increased fuel prices in its monthly review - a major component propelling runaway inflation - on the backdrop of the tanking shilling.