Treasury Cabinet Secretary Ukur Yatani says the Central Bank of Kenya (CBK) will be expected to achieve this target in the current financial year despite the external shocks caused by the disease pandemic and the rise in oil prices.
CBK last month tipped overall inflation to remain within the target range in the near term, citing lower oil prices among other factors.
The National Treasury has maintained the inflation target range at 2.5 percent to 7.5 percent for the ninth consecutive year, pointing to expected aggressive interventions to keep the cost of living down despite Covid-19 impact.
Treasury Cabinet Secretary Ukur Yatani says the Central Bank of Kenya (CBK) will be expected to achieve this target in the current financial year despite the external shocks caused by the disease pandemic and the rise in oil prices.
“The inflation target shall be five percent, with a flexible margin of 2.5 percent on either side in the event of adverse shocks,” said Mr Yatani in a notice to the CBK on the price stability target and economic policy of the government.
“The flexible margin of 2.5 percent on either side of the inflation target is to cater for effects of external shocks such as adverse effects of the Covid-19 pandemic and oil price variations.”
The inflation target is measured by the 12-month increase in Consumer Price Index (CPI) as published by the Kenya National Bureau of Statistics (KNBS).
The announcement comes at a time the cost of living is within the preferred ceiling despite the spread of coronavirus and locust invasion across counties, seen by Treasury as key risks.
Mr Yatani said domestic shocks such as rapid and severe changes in weather conditions may hit agricultural output.
Treasury had in January also cautioned that the locust invasion across counties risks reducing harvests, leading to higher inflation.
The last time inflation breached the government target was in August 2017 when it was at 8.04 percent.
Inflation rate in June edged down to 4.59 percent --the lowest inflation rate since last September, from 5.47 percent in the previous month supported by a fall in prices of food and non-alcoholic beverages.
CBK last month tipped overall inflation to remain within the target range in the near term, citing lower oil prices among other factors.
“This is supported by improving food supply due to favourable weather conditions, lower international oil prices, the impact of the reduction of VAT and muted demand pressures,” said CBK.
Government has taken several measures to minimise the adverse effects of the pandemic on people and businesses.
The interventions include lowering VAT from 16 percent to 14 percent, exempting workers earning up to Sh24,000 from pay-as-you earn and lowering corporate tax from 30 percent to 25 percent.
“The government is also developing a comprehensive post-Covid-19 economic recovery strategy that will reposition the economy on a steady and sustainable growth trajectory after the pandemic” said Mr Yatani.
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