Bloomberg News

Kenya May Cut Benchmark Interest Rate for Fourth Time

January 08, 2013

Kenya’s central bank will probably cut its key interest rate for a fourth time as policy makers take advantage of the lowest inflation rate in two years to help spur the economy’s recovery.

The Monetary Policy Committee, led by central bank Governor Njuguna Ndung’u, will reduce the benchmark interest rate to 10 percent from 11 percent, according to four of six economists polled in a Bloomberg News survey. One analyst predicted the rate will stay unchanged while the other forecast 9 percent. The Nairobi-based bank is expected to announce its decision tomorrow afternoon in an e-mailed statement.

The central bank has adequate grounds to lower borrowing costs as “inflation will remain low in the single digits in 2013,” Yvonne Mhango, an economist for sub-Saharan Africa at Renaissance Capital, said in an e-mailed reply to questions.

Kenya trimmed its policy rate by seven percentage points in the second half of last year to help lift domestic consumption as weakening global growth hurt farming exports and tourism, the country’s leading foreign exchange earners. Growth in East Africa’s largest economy slowed to 3.4 percent in the first quarter of 2012 and 3.3 percent the second, before picking up to 4.7 percent between July and September.

Inflation slowed to 3.2 percent in December as food prices eased with the onset of abundant rain-fed harvests. The worst regional drought in 60 years hampered agricultural output in 2011.

Currency Weakness

The bank may keep the rate unchanged to stem a decline in the local currency after it hit a seven-month low yesterday, said Judd Murigi, head of East Africa research at Nairobi-based African Alliance Kenya Investment Bank.

“The shilling is susceptible to weakness given that we’re a couple months away from elections and investors want to stick to the safe side before that,” he said in a phone interview.

Kenya is scheduled on March 4 to hold its first national elections since a disputed vote in 2007 ignited two months of ethnic clashes that left more than 1,100 dead and displaced another 350,000.

The shilling slid to as low as 86.60 a dollar yesterday, the lowest closing level since May 30, according to data compiled by Bloomberg.

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

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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