Kenya Leaves Key Rate Unchanged as Inflationary Pressures Ease

  • MPC says past measures have continued to bring inflation down
  • Turbulence in financial markets remain risk to inflation

The Central Bank of Kenya left its key lending rate unchanged as pressure on food prices eased, helping to bring down the inflation rate in East Africa’s biggest economy to its lowest level in six months.

The Monetary Policy Committee led by Governor Patrick Njoroge held the benchmark interest rate at 11.5 percent, the Nairobi-based bank said in an e-mailed statement, matching the forecast of 12 of 16 economists and analysts surveyed by Bloomberg. Of the remaining four respondents, three said the policy makers would raise the rate by 100 basis points and one forecast a 50 basis-point increase.

“There is no basis for a rate hike now,” Sunil Sanger, a Nairobi-based independent financial analyst said in an interview before the rate decision. “All targeted indicators -- inflation, money supply and private-sector growth -- are within target or marginally above.”

The annual inflation rate dropped to 5.8 percent in August from 6.6 percent the previous month, bringing it closer to the middle of the central bank’s target range of 2.5 percent and 7.5 percent.

The MPC left the key rate unchanged for a second time after a weakening shilling forced a 300 basis-point increase over two review meetings in June and July. The Kenyan shilling has fallen 14 percent against the dollar this year as inflows from exports of tea and tourism, the nation’s biggest foreign-exchange earners, shrank.

Treasury Secretary Henry Rotich said in a Sept. 16 interview that the shilling was trading at its proper level and in line with a widening current-account deficit. The expanding import bill is partly on capital goods for infrastructure projects that the government expects to help the economy expand by 6.5 percent to 7 percent this year.

"The foreign-exchange rate is not the only variable to consider,” Sanger said. “Even if there was a hike, it will not help the shilling much. Rates on the 91-day Treasury bills have been rising, so a central bank rate hike now will only hurt the economy. The next move on the rates at future reviews should be down.”