Bloomberg News

Kenya June Prices Rise, Boosting Expectation of Higher Rates

June 29, 2011

(Updates with analyst comment in fifth paragraph.)

June 29 (Bloomberg) -- Kenyan inflation accelerated to the highest in more than two years in June, cementing expectations for an increase in interest rates at the central bank’s monetary policy meeting next month.

The inflation rate climbed for the eighth straight month, to 14.5 percent from 13 percent, the Nairobi-based Kenya National Bureau of Statistics said in an e-mailed statement today. Prices rose 1.2 percent in the month.

Accelerating inflation adds pressure on the central bank to raise interest rates to help curb prices and stabilize the currency. Two increases totaling half a percentage point this year have brought the benchmark to 6.25 percent. The monetary policy committee is due to hold its next meeting in late July.

“The benchmark interest rate should follow faster inflation,” Anne Musyoka, a fixed-income trader at Tsavo Securities, said by phone from the capital, Nairobi, before the announcement. Kenya has surpassed its 5 percent inflation target every month since January.

The jump in prices will spur investors to demand higher returns on government debt, Andrew Mwangangi, head of fixed- income at Kestrel Capital East Africa Ltd. in Nairobi, said by phone today.

Kenya sold three-month bills to yield 9 percent at the last auction on June 24. The gap between that rate and inflation is “a concern for fixed-income traders,” Mwangangi said. The yield on five-year notes climbed to 12.5 percent on June 23, from 7.64 percent in January.

Food, Fuel Prices

Grain-price increases due to drought and more expensive imported fuel have fanned inflation in East Africa’s biggest economy, with a weakening currency also pushing prices higher.

Prices of food and non-alcoholic drinks rose 22.5 percent in the 12 months through June, while transport, which includes petrol costs, surged 22.7 percent, the statistics agency said.

Kenya’s central bank has blamed speculation for a 12 percent decline in the shilling against the dollar this year that makes it Africa’s second-worst performing currency, after the shilling in neighboring Uganda.

--Editors: Ben Holland, Heather Langan, Andrew Atkinson.

To contact the reporter on this story: Sarah McGregor in Nairobi at

To contact the editor responsible for this story: Andrew J. Barden at

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