The Central Bank of Kenya (CBK) is today widely expected to leave its policy rate unchanged even as banks continue rationing credit, inflation remains high and the shilling is under pressure.
The last meeting ahead of the General Election comes against the backdrop of sentiment by experts that Kenya’s decision to peg interest rate cap on its base lending rate has eroded decision making of the CBK.
Analysts polled by the Business Daily on Friday expect the Monetary Policy Committee (MPC) to hold the rate, just like in May, at 10 per cent.
“I expect the MPC to stay their hand, against a backdrop where the interest rate cap has created some interference in the transmission of monetary policy and where if you look at the composition of the inflation basket, you will note that excluding food the basket is close to turning negative,” said independent investment analyst and Rich Management CEO Aly Khan Satchu.
“The next rate move will be down but not until after the election and near the end of the year…So no change.”
Stanbic Bank #ticker:CFC regional economist for East Africa Jibran Qureshi said recent inflation print had vindicated the MPC, which has previously argued inflation was predominantly driven by food prices.
“Despite soft domestic demand and weak private sector credit growth, risks associated with political uncertainty could still prompt the MPC to maintain a neutral stance for now,” said Mr Qureshi.
In a pre-MPC outlook, Cytonn Investments said on Friday that based on the trend in private sector credit growth, which is now at an eight-year low and the slowdown in gross domestic product growth, it expects the MPC retain the rate to support economic growth.
Razia Khan, chief economist for Africa at Standard Chartered, citing a research note by the lender, concurred the next cut could be in November.
“The persistence of low-double-digit inflation poses risks to our call for a 50bps rate cut in November, but weak demand and muted secondary price pressures should allow the Central Bank of Kenya to cut the central bank rate to 9.5 per cent by end-2017,” says her report on Kenya.
Kenya’s inflation fell to 9.21 per cent year-on-year in June, from 11.70 per cent a month earlier. The Kenya National Bureau of Statistics partly attributed this to a drop in food prices. Month-on-month inflation was minus 1.2 per cent.