Kenya’s central bank will probably keep its benchmark interest rate unchanged at a record high as surging oil prices threaten efforts to rein in inflation.
The Monetary Policy Committee, led by Governor Njuguna Ndung’u, will keep the benchmark interest rate at 18 percent for a third consecutive meeting, according to the median estimate of nine economists surveyed by Bloomberg. The central bank, based in Nairobi, is scheduled to announce the decision in an e-mailed statement today.
Oil has surged 16 percent in London this year, adding to price pressures as the central bank struggles to cut an inflation rate at 16.7 percent. The bank has boosted its key rate by 11 percentage points since October to bolster the currency and meet the government’s inflation target of 9 percent by June.
“The MPC will want to see further evidence of a deceleration in inflation,” Razia Khan, head of Africa research at Standard Chartered Bank Plc in London, said in an e-mailed response to questions yesterday. Rising global oil prices is a risk for inflation, she said.
Six of the nine economists surveyed by Bloomberg predicted the benchmark rate will stay unchanged, while three forecast a reduction of 1 percentage point.
Ndung’u is under increased scrutiny at the central bank. A parliamentary committee last month recommended that President Mwai Kibaki investigate whether the governor’s actions led to the shilling’s slump to a record low of 106.75 per dollar in October. Ndung’u should be removed from his post while the probe is underway, lawmakers said in a report that’s scheduled to be debated in parliament today.
The currency has strengthened 25 percent against the dollar since Oct. 12 as the central bank boosted interest rates. The shilling was unchanged at 83.35 per dollar by 8:56 a.m. in Nairobi.
In neighboring Uganda, which aims to slow inflation to 10 percent by the end of the year from 25.4 percent in February, the central bank lowered its benchmark rate by 2 percentage points to 21 percent this year.
Kenyan policy makers may have room to lower interest rates as inflation slowed from 19.7 percent in November, according to Yvonne Mhango, a sub-Saharan African economist at Renaissance Capital in Johannesburg, who predicts a 1 percentage-point cut.
“Given that the deceleration of inflation was sharper than expected, we now think the MPC will start its cutting cycle sooner than our initial expectation of the second quarter,” Mhango wrote in a note to clients.
Credit demand has slowed as the central bank boosted interest rates. Growth in borrowing by the private sector eased to 32.1 percent in November from 34.8 percent in October, the central bank said on Jan. 13.