Kenya Pauses Monetary Easing, Sees Moderate Inflation Pressure

  • Central Bank of Kenya leaves benchmake rate unchanged at 10.5%
  • Seven of eight economists polled forecast rate remaining flat

The Central Bank of Kenya maintained its benchmark interest rate at 10.5 percent with an eye on accelerating inflation and concerns that Britain’s exit from the European Union may trigger capital flight.

The decision by the monetary policy committee led by Governor Patrick Njoroge was anticipated by seven of eight analysts surveyed by Bloomberg. One economist predicted a 50 basis point reduction at Monday’s meeting, following one percentage point cut at the previous gathering in May.

“The committee concluded that although demand pressures on inflation remain moderate, the effects of the recent increase in fuel tax were expected to exert temporary upward pressure on consumer prices,” Njoroge said in an e-mailed statement from the capital, Nairobi. “Nevertheless, overall inflation was expected to remain within the government target range in the short term.”

Inflation expectations have been elevated since consumer prices rose by 5.8 percent in June, Faith Atiti, a research analyst at Commercial Bank of Africa, said by phone before the decision. Annual headline inflation may quicken further in July following an increase on excise duty on items such as fuel and alcohol, and a drop in production of corn, the nation’s main staple, she said.

“Pressure is certainly upward,” Atiti said.

The Kenyan shilling was down 0.2 percent against the dollar by 4:51 p.m. in Nairobi. The currency has gained 0.8 percent against dollar this year, according to data compiled by Bloomberg.

Uncertainty following Brexit and the strengthening U.S. dollar have “implications for capital outflows” and may pile pressure on the shilling, Atiti said.

“We could be seeing the shilling weakening to levels above 102 versus the dollar,” she said. “The only reason the currency hasn’t declined is because of central bank intervention.”

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