Bloomberg News

Kenya May Hold Benchmark Rate at Record to Meet Target

May 02, 2012

Kenya’s central bank will probably keep its key lending rate at a record high for a fifth consecutive month as it struggles to meet an inflation target.

The Monetary Policy Committee, led by central bank Governor Njuguna Ndung’u, will leave the policy rate at 18 percent today, according to five of the seven economists surveyed by Bloomberg. The others expected a reduction of 1 percentage point. The Nairobi-based bank will publish its decision in an e-mailed statement.

Inflation slowed to 13.1 percent in April, the lowest level in almost a year, as the impact of last year’s drought eased and the central bank boosted interest rates six times. The bank is targeting inflation of 9 percent by June. In neighboring Uganda, the central bank yesterday left its benchmark rate unchanged at 21 percent for a second month.

“The central bank has made it clear its target is for single-digit inflation and they will likely hold that rate to try and reach it,” Robert Gatobu, a fixed-income dealer with Nairobi-based Bank of Africa Ltd., said in a phone interview yesterday.

Rising oil prices are fanning inflationary pressure in East Africa’s biggest economy, reducing policy makers’ scope to lower interest rates. Persian Gulf Murban crude, the fuel imported for refining in Kenya, climbed 8.1 percent to $120.89 per barrel this year, prompting the government to increase gasoline costs.

Rate Cut Pressure

Ndung’u has so far rejected demands for lower interest rates. Prime Minister Raila Odinga last month added his voice to calls from businesses and consumers to reduce borrowing costs. Some lawmakers had pushed to cap commercial bank lending rates though the bid failed in Parliament on April 19.

“The longer the rate stays up high, the harder the landing the economy will be in for,” Yvonne Mhango, an economist at Renaissance Capital in Johannesburg, said in a phone interview yesterday. “Credit growth is already slowing, so we can see the impact the high interest rate is having on economic activity.”

Borrowing by the consumers and businesses eased to 15.6 percent in March from 16.7 percent in the previous month, according to the central bank. The government said on April 17 slower global growth may undermine its target of 5.2 percent economic expansion in 2012.

High interest rates in Kenya have supported the currency, which gained 21 percent against the dollar since the beginning of October to 83.50 as of 6:30 p.m. in Nairobi yesterday.

Editors:

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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