@Liv are you of the opinion that excessive borrowing and consumption(demand) are fueling Kenyan inflation?? If you are then your suggestion has weight..

Well im of the opinion that the 18% inflation is being driven by food, fuel, and the dollar strength(more than kshs weakness).. nothing more nothing less..

These are all external to the CBK's mandate so whether the timing was right or not is a non issue.. This is because the CBK rate has no effect on this type of inflation whether its at 4%, 11%, 16.5% or 30%..

Save for Liv, U are all fired if u were execs.in my employ!! Deal with what is instead of this what coulda, woulda.

I suggest expansionary fiscal policies through increased spending on infrastructure and irrigation and housing to boost supply..

The CBK is irrelevant in this matter...

@Alibaba - thanks for Correction. That was typo...I meant CBK should have started increasing interest rates from Dec 2010.

@ Guru - Inflation may have been caused by the supply factors.... but that is mainly with respect to food. Dealing with supply factors take a lot of time.... you have a good suggestion ...i.e. irrigation....but that is for long term.

You are right the USD has strengthened... but this should have affected all countries equally. Kenya and many other african countries were however more affected because their exports are far much lower than imports. In 2010 Kenya's exports were sh 410B compared to imports of sh 947B. With higher demand for the dollar from all countries (everyone has been running away from Euro)....Kenya and other countries with lower exports had their currencie depreciate - become weak resulting in IMPORTED inflation...which is not strictly a supply issue....like food.

The huge difference of sh 537B between exports and imports tells you something..... despite years of economic growth we are more consumers than producers....our growth is more consumption driven.... hence higher imports...not much to show for production - this is more reflected in exports...which have not been growing.... this means we can not rule out DEMAND INFLATION.

How would CBK deal with this? RAISE THE INTEREST RATES. This solves this problem in 2 ways

1) Strength the Kshs - we have little to export. so sell our money to dollar investors in order have USD inflows.... this will bring the exchange rate to better levels -- this is being achieved as we talk.... this results in Lower IMPORTED inflation and multiplier effect of paticularly fuel

2) Reduce demand - we are a consumer society...most people borrow to buy consumer items - vehicles, household items etc. (that is why our imports are rising at alrming rate)... only a few companies borrow to produce...and these are mostly huge corporates who can get other sources of funds when borrowing become expensive.

INFLATION MUST COME DOWN FIRST.... then we can think of growth after that.

@Guru, In all this the main star is CBK....
the MAIN mandate of every central bank everywhere is:

STABLIZE PRICES - Not economic growth.

Professor Ndung'u errored early this year by thinking economic growth is his responsibility. It is not.

His is to deal with inflation and exchange rates (stablize prices). period.