Kenyan Central Bank May Keep Record Rate to Support Currency

Kenya’s central bank will probably keep its policy rate unchanged at a record high to shore up its currency.

Kenya will maintain its benchmark interest rate at 18 percent, where it’s been since December, according to five out of six economists in a Bloomberg survey. One analyst predicted a one percentage point cut, which would be the first reduction in a year and a half. The decision will be announced later today.

“The bank will rather err on the cautious side with the possibility that global sentiment could weigh on the shilling,” Thalma Corbett, chief economist with NKC Independent Economists in Paarl, South Africa, said in an e-mail. The bank is “wary of the impact cutting rates would have on the currency, and concerned about the effect high international oil prices could have on inflation.”

Kenya’s central bank is struggling to support the shilling, which has declined 3.1 percent against the dollar since May 1. A plunge in the currency last year helped push inflation close to 20 percent, prompting the central bank to raise its key rate 11 percentage points.

The increase helped the shilling rebound from a record low in October, while inflation eased to 12.2 percent last month, the lowest for more than a year. The government’s target for the end of this month is 9 percent.

The currency gained 0.1 percent to 85.85 per dollar by 8:49 a.m. in the capital, according to data compiled by Bloomberg.

Economic Growth

Kenya removed at least 76 billion shillings ($884 million) in liquidity last month through repurchase agreements and sold an unspecified amount of U.S. dollars in a bid to stabilize the currency.

The central bank may change focus to spurring economic growth rather than curbing inflation as the financial turmoil in Europe persists, Razia Khan, head of Africa research at Standard Chartered Bank Plc in London, said on May 30. She was the only analyst surveyed by Bloomberg to predict a cut.

In neighboring Uganda, the central bank reduced its policy rate by one percentage point to 20 percent on June 1.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

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

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