Journal of Economics, Finance and Management Studies ISSN (print): 2644-0490, ISSN (online): 2644-0504 Volume 5 Issue 12 December 2022 Article DOI: 10.47191/jefms/v5-i12-03, Impact Factor: 6.274 Page No. 3463-3471 JEFMS, Volume 5 Issue 12 December 2022 www.ijefm.co.in Page 3463 Inflationary Effects, Exchange Rate and Economic Growth Rate in Kenya Kitum Toroitich Edward 1 , Dr. Richard Siele 2 , Dr. Alfred Serem 3 1 Phd student MOI university Department of economics 2,3 Lecturer MOI university Department of economics ABSTRACT: Human civilization has always been centred on economic growth. Economic growth difficulties are the main focus of government policy and study in the modern, globalized world. Kenya's overarching goal is to become a middle-income nation that is both globally competitive and wealthy and provides its residents with a high quality of life. The Kenya Vision 2030 is the country's development strategy. Different perspectives on the relationship between inflation, exchange rate and economic growth have shown diverging results. This study's particular goals were to determine the effect of inflation and exchange rate on Kenya's economic growth using Keynesian theory. This study used explanatory research design and adopted positivism philosophy. Annual data from 1980 to 2019 giving 40 observations was used. Vector Error Correction (VECM) Model was customized in analyzing the long run and short-run contribution of macroeconomic variables and gross domestic product in Kenya. From the VECM model, R-square value was 58.62, Chi-square of 26.913 (p > Chi2 = 0.0494) showing VECM was fit for parameter estimation. The coefficient of exchange rate was −0.828 with a p-value of 0.001 while the coefficient of inflation was 0.055, p value = 0.020.The findings of this study will provide good fiscal and monetary policy recommendations to the government as well as guidance on how to solve the issue of weak economic growth. Because economic growth is predicted to slow down when inflation exceeds a particular threshold, the nation must control inflation. The government should support macroeconomic policies that strengthen the stability of Kenya's exchange rate versus the major world trading currencies while aiming for an ideal level of inflation because foreign currency rates have a detrimental impact on economic growth in Kenya. KEYWORDS: Economic growth, Exchange Rate and Inflation Rate. INTRODUCTION Background of the Study Economic growth is the prime priority of macroeconomic policy in any country and Gross Domestic Product (GDP) is considered as a key indicator of this economic growth (Fioramonti, 2017). If GDP of a country increases sooner than the population, then it specifies that GDP per capita of that country is growing and the standard of living of people in that particular country is also improving (Chowdhury, Hamid & Akhi, 2019). GDP of a country is influenced by numbers of variables such as inflation, interest rate, exchange rate, domestic debt, foreign debt foreign direct investment, household consumption and so on. Macroeconomic variables are outside influence elements that are out of dominance or power of the management of any country. Macroeconomic variables are estimates or primary measurements of present economic growth. As with all specialists, the state needs to research, evaluate and comprehend the main factors determining the present conduct of the macroeconomics to do a great job of economic macro management. Thus, the state has to know why and when there are recessions or inflation, and anticipate these developments, as well as the policy mix that will best curb any financial ills. According to Wepukhulu & Otieno, 2019), all countries around the globe face economic risks. According to the study, the likelihood of extreme events is ruled out: the prospect that interest rates in the United States may rise up beyond what is expected. The tenderness of the recuperation in the Eurozone may ignite concerns about the feasibility of the euro; possessions and assess prices failing in China to a point of causing financial distress and ultimately causing fall in growth; or emergence of geopolitical tensions which may cause increase in oil costs and a world slump (Wepukhulu & Otieno, 2019). Growth proponents and development analysts believe that sustained economic growth at national, regional and global level is the key to eradicating social vices such as poverty. This is why multilateral organizations such as the World Bank and the United Nations have increasingly focused on economic growth-oriented interventions. According to the United Nations Global