Kenya’s Central Bank Will Increase Benchmark Rate Tomorrow, Survey Shows
Kenya’s central bank will probably increase its benchmark interest rate for a second consecutive meeting as it seeks to curb inflation that has exceeded the government’s target all year.
Kenya’s monetary policy committee will raise the benchmark interest rate by between a quarter percentage point and 1 percentage point from the current 6 percent, according to all seven economists surveyed by Bloomberg. The central bank is due to announce the decision tomorrow afternoon in the capital, Nairobi.
The bank surprised the market in January with a quarter- point cut, and then reversed the decision at its last meeting in March after inflation accelerated and the shilling weakened. Further increases will be needed in the coming months to counterbalance soaring food and fuel costs, said Celeste Fauconnier, an analyst at Rand Merchant Bank in Johannesburg.
“There is a feeling the central bank is very much behind the curve and it needs to take a stronger monetary stance to steer inflation toward the government’s 5 percent target,” Fauconnier said. Increases will be tempered by the need to ensure economic growth before elections next year, she said.
Kenya’s inflation rate rose to 12.05 percent in April, the highest for two years. Inflation figures for May are due to be published today or tomorrow.
The government increased the retail price of super petrol, the most commonly used gasoline, by 3.8 percent this month, and poor rainfall has pushed food prices higher. Kenya imports all of the oil it uses and some grains.
The International Monetary Fund said last week that inflation in Kenya, East Africa’s largest economy, is a risk that needs to be addressed. The fund also lowered its economic growth forecast for 2011 to between 5 percent and 5.4 percent, from 5.7 percent.
David Cowan, Citigroup Inc.’s Africa economist, predicts that the bank will increase rates by 50 basis points, or half a percentage point, though “the market would like a 100 basis- point rise.”
“They are going to have to play catch-up considering where the inflation rate is now, it’s been rising much quicker and higher than they thought it would,” he said by phone from London.
Kenya has also been relying on other measures to cool inflation, including removing liquidity through repurchase agreements, cutting taxes on kerosene and diesel, and proposing the removal of duties on imports of corn and wheat.
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