Charts That Show Why Kenya's MPC May Now Start Cutting RatesBy
Central bank kept its key interest rate unchanged at 10%
Slow inflation and GDP growth may spur looser policy
Kenya’s central bank kept its key interest rate unchanged for an eighth straight meeting but signaled there may be scope to loosen policy.
While the Monetary Policy Committee left the rate at 10 percent, in line with the forecasts of all nine economists in a Bloomberg survey, Governor Patrick Njoroge said in an emailed statement Monday there was some room for accommodative monetary policy in the near term.
These charts show why the central bank could start cutting rates as soon as March.
Price growth in East Africa’s biggest economy slowed to 4.5 percent in December, the weakest advance since May 2013. This came as food inflation slowed after a drought eased.
The MPC noted “that inflation expectations are well anchored within the government target range” of 2.5 percent to 7.5 percent,” Njoroge said.
Gross domestic product expanded at the slowest pace since 2013 in the third quarter as a government-imposed cap on commercial lending rates, the drought and disputed elections weighed on growth in the world’s largest exporter of black tea. Fitch Ratings Ltd. said last month Kenya’s economic growth could recover to 5.5 percent this year from an estimated 5 percent in 2017 as the central bank starts loosening policy.
The central bank last cut the rate in 2016.
Kenya slapped banks with a law in 2016 limiting loan charges to 400 basis points above the benchmark rate, exacerbating a slowdown in credit growth. Lending to individuals and businesses grew 2.4 percent in the 12 months through December, according to the central bank.
“Looser policy will help to support the nascent recovery in private-credit growth,” John Ashbourne, an economist at Capital Economics Ltd. said in a note, forecasting 150 basis points of cuts this year. “Slow credit growth, largely the result of a law capping commercial lending rates, has been a key drag on economic growth in recent quarters.”
— With assistance by Simbarashe Gumbo