Initially, the central bank had projected to make the programme end in June 2012 but has brought forward the plan to end of this year. According to the bank's Monetary Policy Statement for the half year, the plan will be achieved through a combination of open market operations and steady sales of foreign exchange.
"The bank will continue to monitor risks to core inflation closely and stands ready to tighten liquidity when need arises," stated the statement. The bank statistics show that the shilling traded last week in a band of 1,552/- and 1,584/- against the US dollar in three months consecutively, signifying a new equilibrium range.
The Central Bank Governor, Prof Benno Ndulu said in an interview recently that subsidizing inflation to single digit is unachievable by June 2012 instead the projections have been set for end of the year. Good rains that were to improve food supply in the Eastern African region, stability of global oil prices and the recently observed exchange rate are some of the fundamentals which were earlier projected to pull down inflation to single digit by June, this year.
The exchange rate, according to the report will remain market determined, with the bank participating in the foreign exchange market only for liquidity management purposes and smoothening out short-term fluctuations in the exchange rate. The recent measures taken by the bank in response to currency pressures will be sustained so as to ensure that exchange rate volatility in the market is minimized, explained the report.
"This will be implemented while ensuring that an adequate level of international reserves is maintained," said the report. Following recent developments, the annual growth for average reserve money has been projected to slowdown from 19 to 18 per cent at the end of June 2012.
Consistent with this, money supply is projected to grow by 19 per cent, giving room for credit to private sector to grow by 20.8 per cent, the report further indicates. In the meantime, the government has managed to raise 24.2bn/- only in a seven-year maturity bond deal conducted last week against an offer of 25bn/- on offer.