Kenya Brings Forward MPC Meeting to Consider Inflation Steps

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Kenya’s central bank brought forward its bi-monthly interest-rate meeting as it considers action to curb inflation, acting Governor Haron Sirima said.

The Monetary Policy Committee will meet on June 9, the bank said in a statement on its website on Wednesday. The MPC last met on May 6, when the benchmark rate was left unchanged at 8.5 percent, and usually only meets every two months. The shilling has weakened 7.8 percent against the U.S. dollar so far this year, while inflation last month accelerated to 7.1 percent, close to the top end of the government’s target range.

The MPC “is meeting to review recent developments in the market following significant changes in some key macroeconomic indicators and consider appropriate policy action to keep inflation within the targeted path,” Sirima said in an e-mailed response to questions.

Kenya’s government targets inflation at 2.5 percent to 7.5 percent. Price growth has accelerated every month so far this year, from 5.5 percent in January. The national statistics office is scheduled to release the latest data on May 29.

“There is little doubt that recent shilling weakness and the more rapid rise in inflation will have increased pressure on the CBK to be more proactive,” Razia Khan, head of Africa macroeconomic research at Standard Chartered Plc in London, said in an e-mailed response to questions.

The shilling weakened 0.5 percent to 98.4 against the dollar as of 5:17 p.m. on Wednesday in Nairobi, the capital.

‘Hawkish’ Tone

The last MPC statement earlier this month “struck a notably more hawkish tone, and caused us to bring forward our forecast for the first interest-rate hike to this year rather than early 2016,” Capital Economics said in an e-mailed note. The MPC may have decided to act sooner rather than later, and will probably raise rates by 100 basis points to 9.5 percent, Africa economist John Ashbourne said in the note.

Headline inflation may accelerate to 7.7 percent in May because of rising food costs after a drought, according to a research note e-mailed by Barclays Capital in Johannesburg.

“After keeping the policy rate unchanged at 8.5 percent since May 2013, we believe the committee is likely to tighten policy at the upcoming meeting, in an effort to stem FX pressures and contain associated inflation risks,” it said.

The International Monetary Fund projects East Africa’s largest economy will expand 6.9 percent this year and 7.2 percent in 2016. Kenya is the world’s biggest exporter of black tea.

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