Lower Oil Prices Give Kenyan Policy Makers Breathing Space

  • Inflation breaches upper limit of government's target
  • Fuel import bill drops 34 percent in first nine months of 2015

Lower oil prices may give the Central Bank of Kenya leeway to keep its benchmark lending rate unchanged for a fourth consecutive meeting, despite inflation breaching the government’s target.

Eleven of the 12 economists and analysts surveyed by Bloomberg expect the Monetary Policy Committee led by Governor Patrick Njoroge to retain the rate at 11.5 percent when it meets on Wednesday. One analyst predicts a 100 basis-point increase.

“The currency is relatively stable, oil prices are declining, and inflation is not a threat for the moment,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in an e-mailed response to questions.

Kenya imports all its gasoline and is benefiting from the plunge in oil prices to below $30 a barrel. At the same time, the shilling is little changed against the dollar in the past three months, easing pressure on import costs. Crude purchases shrank by a third to $2.76 billion in the year through September, according to central bank data.

The shilling is faring better than other African currencies, such as the South African rand, which is down 21 percent against the dollar in the same period. The Kenyan currency eased less than 0.1 percent to 102.41 against the dollar by 1:42 p.m. on Wednesday in Nairobi, the capital.

While the inflation rate in Kenya hit 8 percent in December, above the 7.5 percent upper limit of the government’s target, declining oil prices may help drive it lower, Treasury Principal Secretary Kamau Thugge said on Jan. 14. Transport costs make up 8.9 percent of the consumer price index.

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