Kenya central bank holds main lending rate, eyes on inflation

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Kenyan shilling banknotes and coins sit arranged at a market stall in Mombasa, Kenya, on Thursday, Nov. 23, 2017. The country’s Treasury has already cut this year’s growth target to 5 percent from 5.9 percent as the protracted election furor damped investment and a drought curbed farm output. Photographer: Luis Tato/Bloomberg

Omar Mohammed, George Obulutsa
NAIROBI (Reuters) – Kenya’s central bank left its benchmark lending rate unchanged at 9.0% on Monday but its monetary policy committee said it would keep an eye on recent food and fuel price rises that could fuel inflation.

It was the fifth time in a row the bank has held rates.

“The Committee noted that inflation expectations remained well anchored within the target range, but there is need to remain vigilant on possible spillovers of recent food and fuel price increases,” the bank said in a statement.

Rising food, electricity and fuel prices pushed inflation to an annual 6.58% in April from 4.35% a month earlier, within the government’s preferred band of 2.5-7.5% but the highest reading since September 2017.

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The finance ministry expects the economy to grow 6.1% this year, slightly slower than 6.3% in 2018. The central bank said the economy was operating close to its potential.

In its statement, it said private sector credit had grown by 4.9% in the 12 months to April, compared to 4.3% in March, predicting further growth this year, despite banks’ complaints that a commercial lending cap is creating a credit squeeze.

They say the cap limiting commercial lending rates to 4 percentage points above the benchmark has forced them to cut back on loans to high-risk groups.

A Kenyan court ruled in March that the cap, imposed in late 2016, was unconstitutional, but judges suspended the decision for 12 months to allow parliament to reassess the policy.

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Earlier this month, Finance Minister Henry Rotich said the International Monetary Fund was no longer insisting Kenya remove that cap as a precondition for a new standby credit facility.

The central bank said foreign exchange reserves were at an all-time high of $10.06 billion, or 6.4 months of import cover, helped by a $2.1 billion Eurobond the government sold earlier this month.

It said a shrinking current account deficit was supporting the foreign exchange market and said the deficit was expected to narrow further, to 4.8 percent of GDP in 2019 from 5.0 percent in 2018.

Reporting by George Obulutsa and Omar Mohammed; Editing by Catherine Evans

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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