September 25, 2012 / 3:07 PM / 5 years ago

UPDATE 1-IMF keeps Kenya growth forecast, says elections a risk

2 Min Read

* Economy to grow by at least 5 pct this year and 2013

* Official says election violence a risk (Adds details)

By Kevin Mwanza

NAIROBI, Sept 25 (Reuters) - The International Monetary Fund expects the Kenyan economy to grow by at least 5 percent this year and in 2013, thanks to improving macroeconomic fundamentals, a senior fund official said on Tuesday.

Soaring inflation, a slump in the shilling currency and the subsequent high lending rates towards the end of last year cut growth to 4.4 percent from 5.8 percent in the previous year, and eroded investor confidence in east Africa's largest economy.

The IMF however cautioned that its growth forecast depended on the east African nation carrying out a presidential poll scheduled for next March in a peaceful manner.

The last such vote in 2007 was marred by violence after the then opposition disputed the result, sparking violence.

"We believe with lower interest and inflation rates, macroeconomic stability and improved confidence, we think that 5 percent should be well within reach," said Domenico Fanizza who led an IMF visiting mission to Kenya.

"This (projection) assumes that the elections will be smooth," Fanizza said.

The central bank embarked on an easing cycle in July this year after inflation slid continuously since December and after the shilling stabilised against the dollar, restoring a measure of confidence in the economy and policymaking.

It cut the policy rate by 350 basis points to 13 percent at the last rate-setting meeting earlier this month after inflation declined for the ninth straight month to 6.09 percent.

Fanizza said a high buffer of reserves to $5.2 billion, or 4.14 months of import cover, by the central bank had built up confidence in the country's economy.

Kenya's ministry of economic planning expects the economy to grow by 3.5-4.5 percent this year while the Treasury is slightly more optimistic, expecting a growth rate of 5.3 percent. (Writing by Duncan Miriri; Editing by James Macharia)

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