Bloomberg News

Kenya Inflation Slows for Ninth Month, Fueling Rate-Cut Bets

August 31, 2012

Kenyan inflation slowed for a ninth month in August, increasing the likelihood that policy makers in East Africa’s largest economy will cut interest rates for a second straight meeting.

The inflation rate declined to 6.1 percent from 7.7 percent in July, the Nairobi-based Kenya National Bureau of Statistics said today in an e-mailed statement. Prices fell 0.3 percent in the month.

The Central Bank of Kenya lowered its benchmark interest rate by 1.5 percentage points to 16.5 percent in July, the first reduction in 18 months, to bolster the $34 billion economy. Growth eased to 3.5 percent in the first quarter, the slowest pace in two years, weighed down by high interest rates. Second- quarter data is due to be released next month.

“There is little question that Kenyan interest rates have further to fall,” Razia Khan, the head of Africa economic research at Standard Chartered Plc in London, said in an e- mailed note. “Kenya’s economy will benefit from further stimulus but the speed of the stimulus provision is likely to be carefully controlled.”

Slower price gains for food, after a drought-fueled surge last year, and imported fuel gives the central bank wider scope to cut borrowing costs and keep credit flowing.

Money Supply

“They can’t grow the economy without growing money supply,” Alexander Muiruri, a fixed-income analyst with African Alliance Investment Bank Ltd., said by phone from Nairobi. Growth in private lending by commercial banks slowed to 16.4 percent in June from 21.5 percent a month earlier.

Food-price inflation slowed to 3.6 percent in August from 6.6 percent, while transport eased to 3.4 percent from 5.2 percent, the statistics agency said.

The central bank’s rate-setting Monetary Policy Committee is scheduled to next meet on Sept. 5.

The shilling lost a quarter of its value against the dollar and hit a record low of 106.75 in October, driving up import costs. The currency rebounded in the remainder of last year and has been stable this year. It was little changed after today’s figures at 84.35 per dollar as of 2 p.m. in Nairobi.

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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