• Governor says inflation expectations are `fully anchored'
  • Financial system liquidity is still a `big issue': Njoroge

Kenya’s central bank has room to start policy easing in East Africa’s biggest economy as inflation falls back within the government’s target range, Governor Patrick Njoroge said.

“One can say comfortably that there is room to adjust from the tight monetary stance that was there,” Njoroge said in an interview Thursday at the World Economic Forum on Africa in the Rwandan capital, Kigali. “I think that it is a decision that the Monetary Policy Committee needs to make. I cannot pretend to speak on its behalf.” 

The central bank raised its benchmark interest rate twice last year by a total 300 basis points to 11.5 percent, which has helped to curb inflationary pressure. The MPC is next scheduled to meet on May 23.

The weakening growth outlook in the region has put more pressure on policy makers to cut interest rates to lift the economy. Uganda’s central bank last month lowered its key rate to 16 percent from 17 percent.

Kenyan annual inflation was 5.3 percent in April, right in the middle of the government’s target range of 2.5 percent and 7.5 percent. “Expectations are now fully anchored, so the population does not expect inflation will be rising in the future,” Njoroge said.

Liquidity in the financial system remains a “big issue,” he said. The central bank is often in the market removing excess liquidity or injecting cash through reverse repurchase agreements. The shilling has gained nearly 2 percent against the dollar this year after sliding 11.3 percent in 2015.

Against the backdrop of a weaker global economy, the International Monetary in April cut its 2016 growth forecast for sub-Saharan Africa to 3 percent from 4 percent.

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