Kenyan inflation slowed for the 10th consecutive month in September, increasing the scope for the central bank to lower interest rates.
The inflation rate in East Africa’s largest economy dropped to 5.3 percent from 6.1 percent the previous month, the Nairobi-based Kenya National Bureau of Statistics said today in an e-mailed statement. In the month, prices rose 0.3 percent.
Slowing inflation may lead the central bank to cut its key lending rate for a third time to boost demand, reversing monetary tightening undertaken last year to curb prices and support the shilling. The bank has cut the rate twice since July, by a total of 5 percentage points, to 13 percent.
The central bank has “plenty more scope” to ease monetary policy, Razia Khan, head of Africa economic research at Standard Chartered Plc, said today in an e-mailed note. She forecast falling inflation would back the case for interest rate cuts until at least the first quarter of 2013.
Food prices in Kenya are declining as good weather boosts harvests, after the worst regional drought in six decades last year, Solomon Alubala, head of trading at Cooperative Bank of Kenya Ltd., said by phone.
“The big major risk to inflation is the upcoming elections, when typically you see the government spending a lot more money,” he said. Kenya is scheduled to hold elections in March, the first vote since 2007 when accusations of vote-rigging sparked ethnic and political clashes, killing an estimated 1,133 people.
The International Monetary Fund this week said Kenya’s monetary easing should be gradual, warning that any domestic crop disruptions could stoke inflation because global food prices are rising. The IMF forecasts that Kenya’s economy will grow 5 percent this year and next.