Tracking macroeconomic movements across East Africa

The macroeconomic landscape in East Africa is a dynamic and ever-evolving environment, influenced by a variety of factors. One of the key indicators of economic health, inflation, has been undergoing interesting trends across the region. In a recent interview on CNBC Africa, Mulalo Madula, an Economist at Standard Bank, provided insights into the inflation movements in countries like Kenya and Uganda. Madula highlighted the factors contributing to the changes in inflation rates and shared predictions for the future. Kenya, for example, saw a significant decrease in inflation, dropping to 6.3 percent in February from 9.2 percent the previous year. This decline was driven by a slowdown in food inflation due to increased local supply and a decrease in oil prices. The appreciation of the Kenyan shilling also played a role in the lower inflation rate. Looking ahead, Madula expects inflation in Kenya to continue to decrease, possibly reaching around 5 percent by the end of the year. On the other hand, Uganda experienced a slight increase in inflation, rising from 2.8 percent in January to 3.4 percent in February. Madula predicts that inflation in Uganda may peak at around 4.5 percent before slowing down to approximately 4 percent by October. The monetary policy in these countries is closely tied to inflation trends. In Kenya, the Central Bank is expected to maintain interest rates in light of the declining inflation. The possibility of rate easing may arise once inflation expectations are well anchored around the target rate of 5 percent. In Uganda, the recent strengthening of the Ugandan shilling led to a policy rate hike by 50 basis points. Despite the stabilization of the shilling, it remains higher than previous levels, prompting cautious monetary policy decisions. Madula also addressed the actions taken by the Financial Action Task Force (FATF) in the region. Kenya was placed on the gray list by FATF, signaling increased scrutiny on compliance with international money laundering standards. On the other hand, Uganda was removed from the gray list, reflecting improved compliance. The gray listing could potentially impact capital inflows and increase due diligence requirements for financial institutions. However, Madula believes that Kenya's commitment to legislative and implementation adjustments may mitigate any adverse effects in the medium term. Overall, the economic outlook for East Africa remains positive, with careful monitoring of inflation rates and policy decisions playing a crucial role in shaping future trends.