Bloomberg News

Kenyan Inflation Accelerates for 11th Consecutive Month

September 29, 2011

(Updates with comment from analyst in third paragraph, bonds in ninth.)

Sept. 29 (Bloomberg) -- Kenyan inflation accelerated for the 11th consecutive month in September as the shilling fell to a record low, bringing further pressure to bear on the central bank to raise interest rates.

The inflation rate climbed to 17.3 percent, from 16.7 percent in August, the Kenya National Bureau of Statistics said in an e-mailed statement today. Prices rose 1 percent in the month, the Nairobi-based agency said.

“The exchange rate has deteriorated, the Treasury costs have gone up, the short rains haven’t begun; all this feeds into inflation,” Ben Nyamweya, an independent financial analyst, said by phone from Nairobi today. “I don’t think it would be prudent for the central bank to hold the rate.”

The central bank is under pressure to increase its key lending rate after inflation exceeded the government’s 5 percent target in January and has risen every month since, driven up by higher food and fuel costs.

The price of food led by rises in sugar, beef and milk advanced 24.4 percent in September, while transport costs including oil surged 24.8 percent, the statistics agency said.

The monetary policy committee, chaired by central bank Governor Njuguna Ndung’u, surprised the markets by keeping the benchmark interest rate on hold in July, following two increases, in a bid to sustain the country’s economic recovery. It then raised the rate by 0.75 percentage points on Sept. 14 to 7 percent as the shilling weakened and consumer prices soared.

Shilling Weakens

The shilling is the world’s second worst-performing currency this year after losing 19 percent of its value to trade at a record low of 104.2 per dollar on Sept. 27. A weaker shilling has made imports including oil more expensive.

The worst regional drought in 60 years has trimmed crop yields and left 3.75 million Kenyans in need of food aid, according to the United Nations.

Government borrowing costs have risen. The yield on the 91- day Treasury bills climbed to 13.741 percent today, the highest in more than 10 years, adding 55 basis points since the previous sale on Sept. 22, the central bank said.

--Editors: Karl Maier, Ben Holland

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net


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