STANDARD Chartered bank expects the first policy rate hike by the monetary policy committee to be in July 2014 and not in March as it had earlier projected.
In its global focus report for 2014, the multinational bank says that government clamp down on "opportunistic pricing" following enactment of a new VAT law has managed to check inflation.
"With favourable rains expected and inflation likely to remain range-bound between seven per cent and 8 per cent for most of 2014, we change our view on the likely interest rate trajectory," said the bank in its report.
In its November 5 meeting, MPC maintained the Central Bank Rate at 8.50 per cent adding that there was no demand driven inflation that would warrant a revision of the rate.
"We now expect the first policy rate hike of the next cycle to take place in July 2014 (we previously expected March) and forecast a further 50bps rate hike,taking the rate to 9.5 per cent, by the end of the year," said the bank's regional head of research for Africa Razia Khan.
Also in the report, the bank states that there is no risk of overborrowing by the government because despite the devolved system of government that is deemed expensive to maintain.
Stanchart said that increase in demand for more spending by the time the 2014/2015 budget is presented in June will result in a budget deficit of seven per cent of GDP for that financial year.
The National Treasury forecasts a budget deficit for 2014/2015 to be around Sh277.9bn, or 5.8 per cent of GDP compared to the current 7.9 per cent in the current year.