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Kenyan October Inflation Slows for 11th Month, Rate Cut Eyed

Oct. 31 (Bloomberg) -- Kenyan inflation slowed for the 11th consecutive month in October, strengthening the case for the country’s central bank to cut interest rates even further.

The inflation rate in East Africa’s largest economy declined to 4.1 percent from 5.3 percent in September, the Nairobi-based Kenya National Bureau of Statistics said today in an e-mailed statement. Prices rose 0.4 percent in the month, the agency said.

“With a vast differential now opening up between Kenya’s policy rate and the rate of inflation, the focus will now shift to just how aggressive a rate cut we will see from the Central Bank of Kenya next week,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mailed note.

Kenyan policy makers have cut the key lending rate twice in the second half of the year to 13 percent, and are under pressure to make more reductions as inflation slows to help stimulate economic growth.

The economy expanded 3.3 percent in the second quarter, the slowest pace since the final three months of 2009, as tea and flower exports slumped and tourism declined, eroding foreign-exchange income from the country’s two biggest sources.

Cheaper Credit

Growth in food prices, which account for more than a third of the consumer price basket of goods used to measure inflation, rose 1.4 percent from a year earlier, compared with 2.9 percent in September, the statistics agency said. Domestic food production including corn, a staple, is improving after drought last year devastated harvests.

The International Monetary Fund said last week that easing price pressures have given Kenya’s central bank room for monetary loosening to guard against slowing global growth and rising oil prices.

Kenyan politicians are pushing for cheaper consumer credit to appeal to voters before national elections in March, Solomon Alubala, head of trading at Cooperative Bank of Kenya Ltd., said by phone. The bank’s Monetary Policy Committee, which convenes every two months, is next meeting on Nov. 7.

“It’s becoming a political issue and even discussed in parliament,” Alubala said. “The politicians are going to make noise about the central bank, that they need to help the common man.”

Kenya’s currency strengthened less than 0.1 percent to 85.10 a dollar by 3:05 p.m. in Nairobi, heading for its first monthly gain since June, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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