Kenya faces high political uncertainty but institutions stronger - CenBank Gov

By Karin Strohecker

LONDON (Reuters) - Political uncertainty is high in Kenya following the annulment of the August presidential elections, but political and judicial institutions have emerged stronger in the process, the country's central bank governor said on Wednesday.

Opposition leader Raila Odinga was due to face President Uhuru Kenyatta on Oct. 26 in a repeat of the presidential vote held in August which was annulled by the Supreme Court on procedural irregularities.

But Odinga withdrew last week, throwing East Africa's largest economy - a stable Western ally in a tumultuous region - deeper into uncertainty. The head of the election commission said on Wednesday it would be "difficult" to guarantee a free and fair repeat vote.

"The current state of affairs is one of high uncertainty, but I think the point here is that it is all political uncertainty, based on recent announcements by the Supreme Court and the sequence of events that followed that," Central Bank Governor Patrick Njoroge told Reuters in an interview.

"I see it as a mark of maturity of the democratic process," he added.

Kenyans liked "noisy politics" Njoroge said, adding he saw some signs of delays when it came to government spending on big projects. However, this was not excessive and the government was still functioning, he added.

"Kenya is very resilient, and the dynamics we have seen so far underscore Kenya's resilience," he said. "We know two things for sure - whoever wins will be a Kenyan, and whoever wins will be supporting market-based policies."

Asked about the economic impact of the current situation, Njoroge said that the central bank was in the process of revising down its growth forecast.

"Some of this will shave a bit off growth, and some of this will be (government investment) decisions that have been delayed ... but bear in mind that the government has continued to function," he said.

"We still think there isn't a precipitous collapse in growth, on the contrary we still believe that we will have growth rates above 5 percent," he said, speaking on the sidelines of a FT Live conference.

"VERY LITTLE INTERVENTION"

Statistics released in September showed that Kenya's economy grew 5.0 percent in the second quarter of the year - a slower expansion than the previous year due to a weaker performance in agriculture, manufacturing and financial services.

Asked about the performance of the Kenyan shilling, Njoroge said the central bank was committed to the flexible exchange rate policy, but had smoothened out excess volatility.

"We have not been intervening in any market way - in that matter we have not deviated from our flexible exchange rate policy, only smoothing out excess volatility as we see it."

The scale on which the bank had done so was "very, very little" he said, declining to give further numbers.

"It happens, let's say, once every couple of weeks - if at all."

According to traders, the central bank had sold dollars in the foreign exchange market earlier on Wednesday after the shilling weakened on news that an election official had resigned her job a week before the repeat election.

While the shilling has come under some pressure now and then, it has stayed fairly rangebound since mid-August, with market participants pointing to central bank intervention.

Njoroge said the stability of the currency was down to the country's improving, balanced current account. The shilling has weakened less than one percent against the dollar since the start of the year.

(Reporting by Karin Strohecker; Editing by Jeremy Gaunt and Andrew Heavens)