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Opinion divided on monetary position ahead of MPC meet

 Patrick Njoroge
CBK governor Patrick Njoroge. FILE PHOTO | NMG 

Analysts are divided on the likely Monetary Policy Committee (MPC) stance on Wednesday after it left the key rate at nine percent at its last meeting on May 27.

The team said at the time inflation had been contained coupled with a stable foreign exchange market.

Spikes in prices of maize flour, beans and green grams among other foodstuffs pushed inflation to 5.7 percent from 5.49 percent in June, wiping out the temporary benefits on the cost of living brought about by recent rainfall.

Analysts say a central bank rate (CBR) cut could be key to injecting cash into the struggling economy.

“An interest rate cut is needed to stimulate activity, but hands are tied because our deficit makes a cut dangerous as it would drive inflation. The Governor has a very tough decision to make,” said Deepak Dave of Riverside Advisory Capital.

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“50 basis points to stimulate, even 25 basis points will help,” he said.

But according to Elizabeth Nkukuu, chief investment officer at Cytonn Investments, key macroeconomic fundamentals remain unchanged.

“We believe that the MPC will maintain the current policy stance, given the macro-economic environment is still relatively stable.”

Jibran Qureshi, the Stanbic Bank economist for East Africa, said the rate caps had complicated monetary policy, ruling out a cut.

“We don't see a change again,” said Mr Qureshi.

“I think they will wait for clarity on the interest rate cap before providing forward guidance on their next policy move.”

And in a pre-MPC meeting note, researchers at Sterling Capital said the team will adopt a neutral stance.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank, told Bloomberg in an interview that while the MPC panel was likely to keep the benchmark rate at nine percent, food prices and the weakening of the shilling against the dollar could add to inflation pressures.

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