The rate of inflation is projected to decline to single digit in the second half of this year on account of the base effect of higher inflation in 2011.

According to Pinebridge Investments, the Central Bank's effort to strengthen the shilling against the dollar appears to have been effective making the dollar drop to Ksh 85.10.

Edward Gitahi, the firm’s Senior Investment Manager said the shilling was likely to trade between Ksh 85 to Ksh 90 to the dollar during the first half of this year.

Briefing the press today on the uncertainty over the timing of general elections and slow pace of credit growth, Gitahi said the interest rate levels in the first half of 2012 will be expected to remain high due to elevated inflation and the need to defend the local shilling.

He said the prospects of equity market are tied to the expectation of a smooth electoral process, moderation in the level of interest rates and improvement in the economic outlook.

According to the manager, the high interest environment is likely to depress the demand for credit from both business and individuals.

Vice president and Senior Investment Manager of Pinebridge Mr. Peter Wachira said that the banks are unlikely to reduce their lending rates until the authorities reduce the Central Bank rate substantially.

"A fresh round of lending rates is highly unlikely," said Wachira Pinebridge Investment East Africa is a fund management firm which provides investment advice and market asset management products and services to clients in East Africa.