Kenya Resumes Cutting Interest Rates to Support Economy

Kenya’s central bank resumed cutting interest rates with a bigger than projected reduction to support the economy after peaceful elections two months ago eased investor concern about political instability.

The Monetary Policy Committee, led by central bank Governor Njuguna Ndung’u, cut the benchmark interest rate by 100 basis points, or 1 percentage point, to 8.5 percent, the Nairobi-based bank said in an e-mailed statement today. The median estimate of eight economists surveyed by Bloomberg was for the rate to be lowered to 9.25 percent.

“While this 100 basis point easing was very much viewed as a means of supporting credit growth and the wider economic recovery, the key question is what lies ahead,” Razia Khan, head of Africa economic research at Standard Chattered Plc in London said in an e-mailed note to clients. “Conditions remain in favor of interest rate stability for some time.”

The MPC lowered its benchmark rate by 8.5 percentage points between July and January, and left it unchanged at 9.5 percent in March. The shilling has gained 2.6 percent against the dollar since the election.

The currency weakened as much as 0.4 percent after the rate decision was announced to 83.95 per dollar by 5:57 p.m. in Nairobi, according to data compiled by Bloomberg.

Uhuru Kenyatta defeated former Prime Minister Raila Odinga in the March 4 presidential vote, pledging to boost economic growth to 10 percent a year from a projected 5.6 percent in 2013. There was no repeat of the violence that followed disputed polls six years ago, allowing policy makers to focus on spurring East Africa’s biggest economy.

Inflation was unchanged at 4.1 percent in April, below the government’s target of 5 percent, giving the central bank room to ease borrowing costs.

“The central bank will look to support economic growth now that the elections are over,” Eric Munywoki, a research analyst at Nairobi-based Old Mutual Securities Ltd., said by phone before the decision.

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