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Kenya Bank to Hold Special Monetary Policy Meeting Next Week

Kenya’s monetary policy committee will hold a special meeting on Sept. 14 to review efforts to curb inflation and defend the shilling.

“Having seen that the confusion on the supply side is subsiding, we can now assess the situation once more” at the meeting, Central Bank of Kenya Governor Njuguna Ndung’u said today in an e-mailed response to questions.

Harvests expected in September or October could help curb food shortages in the region caused by drought and a famine in Somalia, Ndung’u said on Aug. 18. Surging food prices have helped push inflation in East Africa’s biggest economy to 16.7 percent, more than triple the government’s target.

The central bank cut its key lending rate in January and then raised it at the next two meetings to bolster the currency and curb prices. The bank surprised markets in July by leaving the benchmark at 6.25 percent, saying higher rates can’t curb supply-led inflation. Last month it boosted charges for use of its discount window, a step it said was aimed at reducing speculation that is weakening the shilling, then reversed some of the increase after inter-bank borrowing costs soared.

“What is required here is orthodox monetary policy, not unorthodox moves which they have been doing all year,” Aly-Khan Satchu, chief executive officer of Rich Management, which invests funds for high net-worth individuals, said by phone from Nairobi today. Investors expect an increase in the benchmark lending rate, which is “clearly out of whack with other interest rates,” he said.

Loan Costs Surge

The cost of using the discount window surged above 31 percent on Aug. 26, after the central bank pegged it to rates on the interbank market. The discount rate has since eased to 13.7 percent as the bank changed the way it’s calculated.

The shilling has dropped 14 percent against the dollar this year, hitting a 17-year low of 95.10 on Aug. 9. It traded at 94.72 at 4 p.m. local time today.

Ndung’u has blamed speculative trading for the currency’s decline, and said the measures taken by the central bank were appropriate.

“If you’re driving and you sight a pothole you slow down and swerve to avoid it,” Ndung’u said by e-mail. “This does not mean you have changed the direction of travel.”

Finance Minister Uhuru Kenyatta on Aug. 25 called for a return to monetary stability.

Decisions at the Sept. 14 policy meeting will probably be announced the next day, Samson Burgei, a spokesman for the Nairobi-based central bank, said by phone today. The committee will hold its regular bi-monthly meeting later this month, he said.

To contact the reporter on this story: Johnstone Ole Turana in Nairobi at jturana@bloomberg.net; Sarah McGregor in Nairobi at 3510 or smcgregor5@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.

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