Kenya's central bank eases key lending rate to 16.5pc

The Central Bank of Kenya’s policy setting organ has eased the benchmark rate to 16.5 per cent citing a declining cost of living that has been moving towards the government’s target.

The Monetary Policy Committee (MPC) - which sets CBK’s policy regarding interest rates - lowered the benchmark rate by 1.5 percentage points, signalling that the cost of borrowing may start coming down.

In November last year, the general cost of living peaked to a high of 19.72 per cent after consistently going up for 14 months from a low of 3.21 per cent in September 2010.

However, the cost of living has consistently dropped for the past seven months to 10.05 per cent in June.

“The Committee noted that the implementation of its monetary policy framework is working…it observed that inflation had declined significantly towards the Government short-term target of 9 per cent,” said the CBK in a statement this afternoon.

The banking regulator said that the range of monetary policy instruments in use was robust and should continue to bring inflation towards the medium-term target and sustain general price stability.

“The Committee therefore decided to reduce the central bank rate by 150 basis points to 16.5 per cent,” it said.

This morning analysts at PineBridge Investments had predicted that the policy setting organ was unlikely to lower the benchmark rate.

They pointed out that even though food and fuel prices have been on a downward trend, inflation levels have not yet reached the short term official target of nine per cent and non-food-non-fuel inflation has been trending up.

This week, Chris Okemo, the chairman of the Parliamentary Finance, Trade and Planning committee had said it was too early to loosen the monetary policy while IMF visiting assistant director for African affairs Domenico Fanizza had said that the tight monetary policy stance should be maintained.

However, a Reuter’s poll released on Wednesday showed that eight out of 12 analysts surveyed have predicted that the MPC will cut its benchmark rate representing a shift from last month’s expectations when eight out of 10 analysts said the Central bank would keep rates unchanged.