Dec. 1 (Bloomberg) -- Kenya’s central bank cut its benchmark interest rate by half a percentage point to boost liquidity, even as inflation climbed.

The rate was lowered to 8.5 percent from 9 percent, the Central Bank of Kenya said in an e-mailed statement today. The bank also reduced the level of reserves that commercial lenders must hold with the central bank to 5 percent from 6 percent.

“This will enhance liquidity in the banking system and nurture growth in the recovery process,” bank Governor Njuguna Ndung’u said in the statement. The move may help to ease liquidity constraints before the “festive period and the subsequent launch of the infrastructure bonds,” he said.

Inflation in East Africa’s biggest economy accelerated to an annual 29.4 percent in November from 28.4 percent in the previous month as food costs increased, the statistics office said today. The inflation rate may drop to 20 percent by January, the central bank said on Sept. 9.

The central bank has kept its key interest rate unchanged since June 5, when it was raised by a quarter of a point.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net; Eric Ombok in Nairobi via Johannesburg at abolleurs@bloomberg.net

Last Updated: December 1, 2008 10:48 EST