bwenyenye wrote:Is the inflation we are experiencing now a demand or supply side driven inflation? If it is manily the former,as I see it, then raising the CBR rate is a waste of time
Is the decline of the Kenya shilling being caused by USD demand for imports( and therefore inflation will stifle it) or a negative BoP? It it is mainly due to the latter, as I see it,then raising the CBR rate is not very wise. This is because you end up hurting the very people you want to help. Or maybe they think we are fueling cars from loans? maybe true but I do not know.
@bwenyenye. The prof seems to still believe it's supply driven. People seldom look at language used by the govenor but this time he said "
these complimentary actions should effectively signal relief to the supply constraints that have been driving inflationary expectations..." Relief... sounds like a contradiction... or maybe he's trying not to loose face.
Fundamentally the liquidity in the market has been high ... rising since last year, which he believes was necessary for private investment. But it was bound to overheat (we have way too many imported cars here already). He expected the weak currency to rebalance import demand (lower it) but to what extend are we importing consumer goods. The demand seems inelastic. The decline in KES is due to the negative BOP. I believe raising the cbr will help that.
“We are the middle children of history man, no purpose or place. We have no great war, no great depression. Our great war is a spiritual war, our great depression is our lives!" – Tyler Durden