Kenya’s central bank has room to pause its rate-tightening cycle because inflation has yet to breach the upper limit of the government’s target range, said Treasury Secretary Henry Rotich.
The bank raised its benchmark interest rate by three percentage points over the past two months to 11.5 percent to help shore up the currency and ward off inflation threats. Consumer prices rose 7 percent in June from a year earlier, remaining below the government’s 7.5 percent target ceiling.
“It’s only beyond that, that they require enhanced tightening,” Rotich said in an interview on Tuesday in the Ethiopian capital, Addis Ababa. “For now I think the actions they have done are to slow down any expected increase in inflation and also probably help the exchange rate in terms of holding any speculation that may take advantage.”
The shilling has weakened 11 percent against the dollar this year as foreign-currency earnings from tourism slumped and heightened global risk aversion prompted investors to pull money out of emerging markets. The currency fell 0.5 percent to 102.15 per dollar as of 2 p.m. in the Kenyan capital, Nairobi.
In his first meeting as chairman of the Monetary Policy Committee, Governor Patrick Njoroge, 53, surprised the market by raising the benchmark rate by 150 basis points on July 7. A former adviser to a deputy managing director at the International Monetary Fund, Njoroge took office last month.
“The central bank is concerned about the weak currency and seeking to put a lid on it,” Aly-Khan Satchu, chief executive officer of Rich Management, an adviser to companies and wealthy individuals, said by phone from Nairobi. “I think the central bank has done enough and should not do any more otherwise it is going to be massively counterproductive. They have established their credentials for fighting inflation.”
Rotich said the shilling’s decline was “modest” compared with that of other currencies. Uganda’s currency has fallen 17 percent this year, while Zambia’s kwacha is down 19 percent.
The Treasury projects economic growth of between 6.5 percent and 7 percent this year as an expected rebound in the second half offsets slower expansion in the first quarter, he said. The IMF forecasts the economy will grow 6.5 percent.
In February, the IMF extended $688 million in precautionary loans to help Kenya cushion its $55 billion economy against shocks from bad weather, rising insecurity or changes in sentiment that could affect capital inflows.
Dollar inflows to the world’s biggest exporter of black tea have slowed following a series of gun and grenade attacks by militants in neighboring Somalia that have scared off tourists, a key source of foreign exchange in East Africa’s biggest economy.
Kenya’s official foreign reserves fell 9.8 percent to $6.6 billion since the beginning of the year to July 9, enough for 4.2 months of imports.