“Given that the next MPC meeting does not take place until July, we anticipate there may be a need to call an extraordinary meeting to curb the runaway currency,” Matthew Pearson, the London-based head of African equity products, wrote in a note to clients e-mailed today. “If the Central Bank of Kenya fails to implement a significant hike in rates, we do not foresee the current rally abating.”
The shilling has weakened 9.8 percent against the dollar this year, making it the fourth-worst performer worldwide after Suriname’s dollar, Maldives’ rufiyaa and the Iranian rial, according to Bloomberg data. The shilling strengthened 0.5 percent to 89.47 per dollar by 12:27 p.m. in Nairobi after reaching the weakest level in 17 years against the U.S. currency yesterday.
Kenyan Finance Minister Uhuru Kenyatta projected last week that economic growth will ease to 5.3 percent this year, from 5.6 percent in 2010, as higher oil and gas prices damp consumer spending in East Africa’s richest economy.
IMF, World Bank
The revisions came after the Central Bank of Kenya switched its priority to cooling inflation, from spurring economic growth. The bank’s monetary policy committee, chaired by Governor Njuguna Ndung’u, has increased the benchmark interest rate by a total of half a percentage point to 6.25 percent, over its last two meetings in March and May.
The committee unexpectedly cut the rate in January, its eighth reduction since December 2008, to a record low of 5.75 percent, even as the inflation rate surpassed the government’s 5 percent target the same month. Inflation has accelerated for seven consecutive months, climbing to 13 percent in May.
The central bank’s MPC normally meets every two months.
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