Bloomberg News

Kenya May Keep Key Rate Unchanged After 6 Rises Curb Prices

February 01, 2012

(Updates with shilling level in fifth paragraph.)

Feb. 1 (Bloomberg) -- Kenya’s central bank will probably keep its benchmark lending rate unchanged for a second month as six increases last year helped to cool inflation in East Africa’s largest economy.

The Monetary Policy Committee, led by Governor Njuguna Ndung’u, will keep the benchmark interest rate at a record 18 percent, according to all five economists surveyed by Bloomberg. The central bank, based in the capital, Nairobi, will announce its decision in an e-mailed statement today.

“Inflation has stabilized and is slowing and the shilling has appreciated significantly,” Angus Downie, a fixed-income and currency strategist at Ecobank Transnational Inc., said by phone from London. “It may be too early to start cutting rates so the central bank will likely leave it on hold.”

Policy makers boosted the key rate by 12 percentage points last year to rescue the shilling and combat inflation, which reached 19.7 percent in November. Since then, inflation has slowed to 18.3 percent in January as the impact of the worst drought in 60 years waned and the shilling surged 27 percent against the dollar from a low of 106.75 on Oct. 11.

The currency gained 0.5 percent to 83.45 per dollar by 9:40 a.m. in Nairobi, heading for its strongest close in almost nine months.

Ugandan Rates

The central bank in neighboring Uganda will also announce its interest rate decision at 11:30 a.m. local time in Kampala, the capital. The Bank of Uganda, which raised its benchmark interest rate by 10 percentage points since introducing it in July, held the rate at a record 23 percent on Jan. 3.

Kenya’s government is targeting inflation to slow to about 10 percent within a year and ease to 5 percent in the fiscal year ending June 30, 2015.

The central bank is under pressure to lower interest rates to support the economy. Acting Finance Minister Robinson Githae said on Jan. 30 higher interest rates are “supposed to be a temporary measure.”

“Once the excess liquidity has been mopped we should be able to see a reduction in interest rates which is important to everybody,” Githae said.

--With assistance from Simbarashe Gumbo in Johannesburg. Editors: Nasreen Seria, Karl Maier

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

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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