Kenyan, Regional Outperformer, Currency to Stabilise as Economy Rebounds
Kenyan, a regional outperformer, the shilling is projected to stabilise on the expectation that the country’s economy is going to experience a strong rebound in 2021, Fitch Ratings said in the Sub-Saharan Monthly outlook report. According to Fitch, covid-19 will keep East African growth below trend amidst low vaccination but indicates that sub-region performance could be different.
“We expect that downward pressure on the Kenyan shilling will ease in 2021, as capital inflows rebound”, the Ratings said. It added that greater shilling stability will help to contain import costs, and forecasts that inflation will remain within the Central Bank of Kenya (CBK)’s 2.5-7.5% target range.
With inflation remaining under control, Fitch said the CBK will likely keep its policy rate at a 1-year low of 7.00% throughout 2021. Adding that accommodative monetary policy conditions will support lending activity, and the Ratings firm expectation is that the resulting rise in credit growth will buoy the overall economic recovery.
It also noted that high-frequency indicators suggest that private sector activity has been expanding following contractions in real GDP in Q220 and Q320. However, the government tightened restrictions between March and early May, will likely weigh on the recovery in the second half of 2021.
“We forecast that real GDP growth in Kenya will rebound from 0.1% in 2020 to 4.4% in 2021”, Fitch said. It added this growth rate will keep Kenya a regional outperformer, but is well below the country’s 2010-19 average of 5.8%.
East Africa’s access to Covid-19 vaccines has faced delays, like elsewhere in Sub-Saharan Africa, and this will slow vaccine rollouts. A key challenge will be delivering vaccines to populations living in rural areas, where the quality of transport and power is low.
“We forecast modest sub-regional growth of 3.6% in 2021, well below trend. The country-by-country outlook will vary greatly, however, with Rwanda and Tanzania posting strong growth rates”, Fitch said.
In a report, Fitch said high frequency indicators suggest that private sector activity has been expanding, and the ratings expect that looser lockdown restrictions compared to 2020 will support economic growth.
However, the government’s unambitious vaccination programme will let Covid-19 spread further in 2021, limiting the economic recovery.
“We forecast that real GDP growth will rebound from 0.1% in 2020 to 4.4% in 2021. This growth rate will keep Kenya a regional outperformer, but is well below the country’s 2010-19 average of 5.8%”, Fitch said.
Kenyan, Regional Outperformer, Currency to Stabilise as Economy Rebounds
