Kenya May Hold Key Rate as Inflation Nears Target Ceiling

The Central Bank of Kenya will probably hold the benchmark interest rate as it tries to contain accelerating inflation without stifling economic growth.

The bank’s Monetary Policy Committee will leave the key lending rate unchanged at 8.5 percent, according to eight of 10 economists in a Bloomberg News survey. The rest predicted an increase of half a percentage point. The decision will be announced tomorrow afternoon in the capital, Nairobi.

Kenya has held the key rate steady for a year as it weighs the prospect of inflation exceeding the 7.5 percent upper end of the government’s target range against slower-than-expected growth in East Africa’s largest economy. Inflation accelerated for the third straight month to 7.4 percent in June.

“Inflation has picked up and the central bank will still want to wait for longer to see the trend,” Aly-Khan Satchu, chief executive officer of Nairobi-based Rich Management Ltd., an adviser to companies and wealthy individuals, said by phone.

The World Bank last month lowered its 2014 economic growth forecast for Kenya to 4.7 percent, from a projection of 5.1 percent it gave six months earlier, citing worsening insecurity and a delay in seasonal rains that has affected crops. Agriculture accounts for more than a fifth of output in the world’s largest black-tea exporter.

Foreign travel warnings that followed attacks, including a raid by Islamist Somali militant group al-Shabaab on a shopping mall in Nairobi in September that left more than 67 people dead, have dented the country’s tourism industry. At least 22 people died in attacks on July 5 on two villages near the coast in an area where at least 60 others were killed last month.

Tourism in Kenya, home to Indian Ocean coastal beaches and wild-game parks, is the second-largest source of foreign exchange, generating about $1 billion a year.

Political Rally

Supporters of former Prime Minister Raila Odinga plan to attend a rally today in Nairobi to back his demands for a dialog with President Uhuru Kenyatta on ways to address worsening insecurity and the rising cost of living. Kenyatta has rejected the request for talks. Odinga is the leader of the opposition Coalition for Reforms and Democracy.

More than 15,000 security forces are expected to be deployed at potential flashpoints for violence, according to the Nairobi-based Daily Nation newspaper.

The shilling gained less than 0.1 percent to 87.80 per dollar by 8:33 a.m. in Nairobi.

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

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net Sarah McGregor, Karl Maier

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