Kenya central bank Governor Njuguna Ndung’u said inflation will probably remain stable, while tourism is set to rebound, improving the prospects for East Africa’s largest economy.

Consumer-price growth will likely hover between 5 percent to 7 percent over the next three months, Ndung’u, 55, said in an interview from his office yesterday in the capital, Nairobi. Tourist arrivals, which have dropped this year because of security concerns following a surge in attacks by Islamist militants, will probably recover as foreign governments ease travel warnings, he said.

“It’s a shock that is affecting a particular sector,” he said. “It’s not going to be forever. I don’t see growth declining significantly because of that.”

The Central Bank of Kenya, which Ndung’u has led since 2007, has left the benchmark interest rate unchanged at 8.5 percent for more than a year as inflation eased to 6.6 percent in September. Improved economic prospects may give policy makers room to keep monetary policy stable to support growth as tourism recovers.

“There is no fundamental change in the profile of inflation as of now and as we go forward,” Ndung’u said. “The outcome of inflation and the outcome of growth will determine” the outlook for interest rates, he said.

Visitors to Kenya have been deterred by attacks including the raid on Nairobi’s Westgate shopping mall by al-Shabaab gunmen in which 67 people were killed a year ago and violence in the coastal town of Lamu in June. That prompted the U.K., U.S. and other foreign governments to issue travel warnings telling citizens to avoid beach resorts along the Indian Ocean coast as well as parts of Nairobi and northern Kenya.

Travel Advisories

Arrivals through Kenya’s international airports in Nairobi and Mombasa fell by 28 percent to 172,258 in the second quarter from a year earlier, according to the Kenya National Bureau of Statistics.

“The volatility is coming purely because of advisories. They are going to suffer for a short period,” Ndung’u said.

The U.K. yesterday removed its warning to avoid low-income suburbs of Nairobi, except for the Somali enclave of Eastleigh, while keeping in place its advice against non-essential trips to parts of Mombasa, Lamu and the north.

Tourism is the second-largest source of foreign exchange for Kenya, after tea exports, generating about $1 billion last year.

Revisions to gross domestic product data, which were released yesterday, boosted the size of the economy by a quarter to $55.2 billion, putting Kenya ahead of Tunisia and Ghana as the ninth-biggest African economy. Last year’s growth rate was also adjusted to 5.7 percent from 4.7 percent.

Measuring Tools

The data overhaul doesn’t have a direct impact on monetary policy decisions, Ndung’u said. The central bank monitors short- term indicators, such as tourist arrivals, electricity production, construction output and value-added tax receipts, he said.

“Rebasing comes in to enlarge the tools,” of measuring production, he said. “Monetary policy decisions are short term decisions to affect the economy and to rearrange the economy.”

To contact the reporter on this story: David Malingha Doya in Nairobi at dmalingha@bloomberg.net. To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net. 

Photo Credit: The attack on the Westgate Mall last fall left scores dead and prompted multiple foreign offices to suggest travelers avoid Kenya. Associated Press