Analysts cite the interest rate cap—that has seen the regulator hold rate 14 months since—introduced slightly over a year ago as the biggest obstacle to a rate cut.
The rate of inflation has been on a downward trend in the last few months to reach 5.72 per cent in October, while economic growth is seen slowing due to the effect of a drought earlier this year and a prolonged electioneering period.
The Central Bank of Kenya (CBK) is expected to retain its benchmark interest rate at 10 per cent at a policy meeting scheduled for Thursday, a poll of economic analysts has shown.
The consensus was ‘hold’ for the five analysts contacted by the Business Daily. They cited the interest rate cap—that has seen the regulator hold rate 14 months since—introduced slightly over a year ago as the biggest obstacle to a rate cut.
“Essentially the rate caps have created material interference in the monetary transmission mechanism,” said Aly-Khan Satchu, Nairobi-based analyst and CEO of Rich Management.
“Therefore, any rate cut – which in a normal monetary ecosystem is now due because of the sharp slide in inflation and an economy which is at a standstill – would be muddied,” he added.
The rate of inflation has been on a downward trend in the last few months to reach 5.72 per cent in October, while economic growth is seen slowing due to the effect of a drought earlier this year and a prolonged electioneering period.
Last month, the Treasury cut its growth projection for the 2017/18 fiscal year to 5.1 per cent from previous 5.9 per cent.
Analysts said they expect the Monetary Policy Committee to keep the rate steady until at least mid-2018 as they watch out for the effect of the ongoing political crisis and effects of accounting rules changes in the new year.
On Monday, the Supreme Court upheld President Uhuru Kenyatta’s win in a repeat election, ending speculation that another election could be held in 90 days.
Razia Khan, chief economist for Africa at Standard Chartered #ticker:SCBK, said she had revised her forecast on Kenya’s rate decision to hold from an earlier prediction of a 50 basis point cut.
“Despite inflation coming down and the need to spur growth through encouraging credit growth to the private sector, there are still some risks like the political uncertainty facing the economy that may affect the currency,” Cytonn Investment said in a note.
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