Kenyan Central Bank Sees Scope to Ease Rates From Spending Cuts

Kenya’s government will propose spending cuts next month that the central bank said will help reduce interest rates in East Africa’s biggest economy.

The Treasury will submit a supplementary budget to lawmakers in January to reduce recurrent expenditure, Principal Secretary Kamau Thugge said by phone Thursday from the capital, Nairobi. A circular has been issued to ministries to lower spending on items including travel, he said.

The proposed cuts will help ease monetary policy, Central Bank of Kenya Governor Patrick Njoroge said. The central bank raised rates by 300 basis points at two Monetary Policy Committee meetings in June and July to support the shilling, which has weakened 11 percent against the dollar this year.

“It will help us to have a less tighter monetary stance,” Njoroge said.

Economic growth in Kenya is forecast to accelerate to 6.8 percent in 2016, compared with an estimated 6.5 percent this year, according to the International Monetary Fund. The spending cuts being proposed by the Treasury aren’t expected to reduce output, Thugge said.

“We don’t think it will curb growth because we aim to mainly cut recurrent expenditure like travels and leave the development budget,” he said.

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