Kenya’s central bank will probably keep borrowing costs at a record high today as surging fuel prices make it difficult to meet its inflation target.
The Monetary Policy Committee, led by Governor Njuguna Ndung’u, will leave the benchmark rate at 18 percent for a fourth consecutive meeting, according to five of the eight economists surveyed by Bloomberg. The rest expect a cut of between half and 1 percentage point. The MPC is due to publish its decision in an e-mailed statement from Nairobi, the capital.
Inflation (KNPRIYY), which has eased after last year’s drought, is still at almost double the government’s 9 percent target for June, making it difficult for the central bank to lower borrowing costs. Commercial bank rates soared after the MPC boosted its key rate by 12.25 percentage points last year, prompting complaints from politicians and consumers.
“The central bank is still far from its inflation target,” Duncan Kinuthia, a fixed-income dealer at Nairobi- based Commercial Bank of Africa Ltd., said in a phone interview yesterday. “There will be political pressure to bring down the costs on loans, but over and above that, the bank doesn’t want to cut aggressively and have an impact on the exchange rate.”
Higher interest rates helped to boost the shilling by 28 percent against the dollar from a record low of 106.75 on Oct. 11, easing pressure on inflation, which slowed to 15.6 percent in March from a peak of 19.7 percent in November. The shilling was at 83.11 per dollar as of 5 p.m. in Nairobi yesterday.
Kenya, which imports almost all the fuel-products it consumes, raised the maximum price of gasoline by 3 percent in March, its first increase in four months. Brent crude oil has surged 11 percent in London this year.
The International Monetary Fund last month advised Kenya’s central bank to keep monetary policy “tight” until inflation expectations have declined. Rising oil prices are a risk to the inflation outlook, Ndung’u said on March 6.
The central bank is under pressure to lower interest rates to mute the effects of the debt crisis in Europe, which sources about a third of its demand for fresh-cut flowers from Kenya. The East African nation, the world’s largest exporter of black tea, will probably expand 5.3 percent this year from an estimated 4.5 percent in 2011, according to the government.
A rate cut “would help stimulate demand in the economy,” Nema Ramkhelawan-Bhana, an Africa analyst with Rand Merchant Bank in Johannesburg, said in a phone interview. The policy rate is “very restrictive on commercial bank lending rates and pushing up the cost of funds in the interbank market.”
Still, Kenya’s rate isn’t the highest in the region. In neighboring Uganda, the central bank left benchmark rate unchanged at 21 percent on April 2, after lowering by 2 percentage points this year, to bolster the currency as oil prices gain.
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