Kenya May Resume Cutting Policy Rate to Boost Growth

Kenya’s central bank may resume cutting interest rates to support the economy following peaceful elections two months ago.

The Monetary Policy Committee, led by Governor Njuguna Ndung’u, is set to reduce the benchmark interest rate by a quarter of a percentage point to 9.25 percent, according to the median estimate of eight economists surveyed by Bloomberg. Four predict the rate will stay unchanged, while forecasts for a cut range from 50 to 100 basis points. The bank will announce its decision in an e-mailed statement tomorrow, Nancy Sang, a spokeswoman for the bank, said in a phone interview.

Policy makers are focusing on supporting economic growth after pausing the rate-cutting cycle in March to await the outcome of elections. President Uhuru Kenyatta defeated former prime minister Raila Odinga in the March 4 vote, which didn’t repeat the violence that killed more than 1,100 people following a disputed ballot six years ago.

“The political story in Kenya is now over and bedded, so the central bank should cut the rate and stimulate economic development,” Robert Bunyi, managing director of Nairobi-based Mavino Capital Ltd., said in a phone interview. “Rates were formerly higher because of inflationary pressures and a weak shilling, but that’s not a worry now.”

Kenyatta has pledged to boost economic growth to 10 percent a year from an estimated 5.6 percent this year and 5 percent in 2012.

Inflation Steady

Inflation (KNPRIYY) was unchanged at 4.1 percent in April, below the government’s target of 5 percent, giving the central bank room to ease borrowing costs. The shilling has strengthened 2.6 percent against the dollar since the election, helping to keep price-growth under control. The currency weakened 0.3 percent to 83.80 per dollar at 9:40 a.m. in Nairobi today.

“Not only has the Kenyan shilling rallied since the election, but globally, oil prices appear to have moderated,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mailed response to questions.

Tomorrow’s expected rate cut may be the last in this cycle as government spending pressures increase with the creation of county administrations, Khan said. The MPC lowered its benchmark rate by 8.5 percentage points between July and January.

Kenyatta also announced a 14 percent increase in minimum wages from May 1.

To contact the reporter on this story: David Malingha Doya in Nairobi at dmalingha@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net

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