News Column

Analysts Expect CBK to Hold Benchmark Rate At 8.5 Per Cent

July 8, 2014

Constant Munda



The Central Bank is expected to maintain its key lending rate in light of slowed business activity, moderating food prices and less than expected growth in the first quarter.

The bank's monetary policy committee meets today to set the direction it wish the interest rates to take over the next two months. Analysts and researchers however expect the rate to be retained at 8.5 per cent.

They said rising insecurity and heightened political environment has slowed down business activities leaving the economy facing "uncertain times".

"The rate should be left the way it is because the economy is in a state of confusion," said managing director of Sterling Investment Bank John Kirimi in a telephone interview. "Increasing it could be unwise due to ongoing insecurity and politicking."

Standard Chartered Bank, which had early May rooted for a slight increase of 50 basis points on the CBR to nine per cent on increasing food inflation due to poor rains earlier in the year, has also reversed its forecast on a supportive interest rates regime.

Lead researcher Razia Khan said the CBR should be maintained at 8.5 per cent until December. "Weak growth with GDP undershooting expectations and a rising security threat should provide enough justification for the CBR to remain on hold until December meeting," the London- based economist said in an e-mailed response to The Star.

"Although electricity prices are set to rise in July, the impact may be offset by other factors." The economy grew by 4.1 per cent in the first three month of the year, less than 5.2 per cent posted in a similar period las year.

Inflation in June also edged up to 7.39 from 7.30 per cent a month earlier- the highest in seven months. The data showed that food prices nonetheless decreased by an average of 0.26 per cent in June compared to May. Razia said "signs that an earlier spike in food price inflation may now be moderating suggest that the balance of risks has changed" hence the argument to hold the CBR at 8.5 per cent.

The CBR to be set today will form a basis for setting a new pricing system for loans under the Kenya Bankers Association- backed Kenya Bank Reference Rate.

The reference rate set to become effective this month for new loans will be an average of the CBR and 91-day Treasury Bill rate for the last six months.


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Source: AllAfrica


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