Housing Finance of Kenya Sees Higher Inflation in Q1 This Year

Inflation in Kenya, East Africa’s biggest economy, is expected to rise in February and March because of increased spending for election campaigns, Housing Finance Ltd. Managing Director Frank Ireri said.

Kenya’s only publicly traded mortgage lender reported a 19 percent increase in full-year profit yesterday, even as interest expenses doubled to 3.12 billion shillings ($35.6 million).

“What is fueling inflation is the election spending, most of which is going to consumption,” Ireri told reporters today in the capital, Nairobi. Kenya holds presidential elections on March 4. “Tied to that will be resultant monetary policies in terms of interest rates,” he said.

Kenyan inflation accelerated for the first time in 14 months in January, while remaining below the government’s target of 5 percent. The inflation rate climbed to 3.7 percent from 3.2 percent a month earlier.

The central bank in Kenya cut its benchmark rate four times since July to 9.5 percent, as inflation abated. The bank’s Monetary Policy Committee raised the rate to a record 18 percent in 2011 to bolster a collapsing currency and curb price pressures after the worst drought in decades.

Higher interest rates “would eat into their net interest income” and raise interest expenses as they did in the first half of 2012, Nairobi-based AIB Capital Ltd. said today in an e-mailed note to clients.

Housing Finance plans to introduce foreign-currency bank accounts for the first time, primarily targeting Kenyans working abroad in places like the U.S. and U.K., Ireri said. They account for a fifth of its loans, he said.

The company also plans to recruit agents, mostly from within the construction industry, and increase its outlets to 40 by 2016 from 13 now, Ireri said.

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