3rd annual kenya diaspora homecoming convention catholic university, nairobi remarks by dr. patrick njoroge governor, central bank of kenya december 14, 2016 as prepared for delivery good afternoon! i am indeed honored to speak before this distinguished diaspora homecoming convention. i would like to express my thanks to the kenya diaspora alliance for the invitation to participate in this session as a keynote speaker. let me begin by acknowledging the important role of the kenyan diaspora in economic development mainly through remittances. diaspora remittances are currently one of the main sources of foreign exchange for the country, amounting to usd1. 7 billion in the 12 months to october 2016, up from usd1. 4 billion in 2015. apart from remittances, which are an alternative investment financing channel in key sectors of our economy such as real estate, diaspora entrepreneurs are helping create jobs and stimulate trade. as you are aware, the government has been implementing measures to tap the enormous potential of our diaspora ’ s knowledge and expertise in order to enhance their contribution to economic development. i also understand that diaspora diplomacy has been mainstreamed in our foreign policy, thereby providing the necessary framework for dialogue between the government and diaspora on pertinent issues to the economy. the theme of this conference – diaspora voting and youth empowerment – underscores the importance of the diaspora and youth participation in the overall development of our country. given this theme, and borrowing from my recent experience as a diaspora returnee, i would like to highlight measures that have been put in place to enhance the economic environment, and the economic opportunities that are available to the diaspora. first, macroeconomic stability remains paramount. the achievement and maintenance of a low and stable inflation facilitates predictability in the economic environment thereby promoting investment and a sustainable growth. prudent monetary policy has kept inflation within the government target range, and ensured stability in the foreign exchange market. in this regard, the cbk moved decisively in the second half of 2015 to deal with rising inflation expectations largely due to increases in food prices, and pressures in the foreign exchange market reflecting developments in the global financial markets. as a result, overall inflation declined to stand at 6. 7 percent in november 2016 from 8. 0 percent in december 2015. however, we are closely monitoring developments in the domestic and global economies which could have implications on the price stability objective. uncertainties remain with respect to the impact of brexit, potential resumption of tightening of u. s. monetary policy, and the

prices is often due to aggregate demand being significantly lower than the total supply of goods and services in the economy. this type of situation can arise for two reasons : one is that demand could fall heavily, for instance, as a result of households for some reason reducing their consumption. the other is that supply could increase significantly, for instance as a result of technological advances leading to increased productivity. while demand - driven deflation is connected with weak production growth, the opposite applies to supply - driven deflation. these are usually termed “ bad deflation ” and “ good deflation ” respectively. in practice it is not so easy to distinguish between one sort of deflation and the other. problems arise when demand is too low in relation to supply. in my opinion, there could be a possibility that the increasingly skewed distribution of income that has arisen over the past 20 years, particularly in the united states, but also in europe and in ‘ emerging markets, has led to total demand being excessively weak from a global perspective. however, to the extent that the present low price pressure is due to good productivity growth and the increased supply of cheap goods and services from china and india, it can thus be termed “ good deflation ”. these positive supply shocks, combined with the declining rate of inflation, have led to an increasing number of analysts, including fed governor ben bernanke, recently drawing attention to the risk that the negative output gap could be larger than anticipated. this would mean that disinflation is more pronounced than we are currently assuming. the structural changes may have made it even more difficult to assess the economies ’ long - term growth potential and consequently to estimate total resource utilisation. it is, of course, a complicating circumstance that factors a central bank has difficulty in identifying and controlling are important to inflation trends, in both the short term and in a longer perspective. however, there is at the same time a lot a central bank can do to prevent excessively low price increases and to parry the increased complexity following in the wake of globalisation. here i would in particular like to emphasise the importance of having a symmetric inflation target that functions as a clear, credible target for participants in the economy. i would also like to emphasise the importance of central banks ’ communication in a low - inflation economy, as it is then particularly important to create stable, positive inflation expectations. risks of deflation an interesting, but possibly hypothetical, question is whether there is