(Reuters) - The African Development Bank (AfDB) has cut the expected economic growth rate for Kenya in 2011 to 3.5-4.5 percent from an earlier forecast of 4.5-5 percent due to high inflation and a volatile exchange rate, the bank's country economist for Kenya said on Friday.
The shilling has fallen through several record lows against the dollar this year and the AfDB expects it to continue sliding towards the 110 level per dollar, compounding the problem of rampant inflation, which the bank projects will head to 20 percent in October, or December, from 16.67 percent in August, Reuters report said.
"When you have those fundamentals behaving the way they are, then definitely you get a hit on GDP growth," Walter Odero told Reuters.
"The projection which we had at the beginning of the year was to have a growth of 4.5-5 percent, that has since been revised to 3.5-4.5 percent for 2011."
Odero said the central bank had failed to respond quickly to the volatility in the exchange rate, adding that policymakers have to raise the Central Bank Raate (CBR) aggressively.
"Reaction from the central bank has been slow simply because they believed it was external forces which was hitting the shilling," Odero said.
"But they started reacting when they realised that external forces were not slowing down but internal forces were also coming in, for example, the speculating effects."
The central bank raised its lending rate by an unprecedented 75 basis points to 7.0 percent last week and said it was focusing on fighting inflation, abandoning its much-derided strategy of keeping rates low to protect growth.
"Definitely they will have to (raise rates). Raising it way up to 12 (percent), to me, would still be okay," he said.