Kenya slashes central bank rate to 7 percent

By Helen Nyambura-Mwaura

NAIROBI (Reuters) - Kenya's Monetary Policy Committee (MPC) went against market expectations and slashed the key central bank rate on Tuesday to bolster tentative signs of economic recovery.

The MPC cut the benchmark rate by 75 basis points to 7 percent, the fifth cut since December when it was 9 percent.

"Given the upside risk to inflation is low, credit risk is declining and in order to support the nascent economic recovery, the Committee considered that it was necessary to boost credit availability," central bank Governor Njuguna Ndung'u said.

Kenya's inflation rate slumped to 6.6 percent in October from 17.8 percent in September after the statistics body adopted a new calculation method. The headline rate would have been 17.5 percent in October under the old method.

Eight of nine analysts polled by Reuters last week said they expected rates to be kept on hold but one said a lower inflation rate and concerns over the pace of economic recovery would prompt the MPC to make a 25 basis point cut.

Even those predicting a cut were surprised by the size of the reduction.

"They were a little bit more aggressive than I expected, but not significantly," said David Cowan, Africa economist at Citi. He had predicted a 0.50 percentage point cut because of the sharp drop in the inflation rate and an expected further easing in prices.

Some analysts felt the central bank would hold off to allow previous cuts to trickle through to commercial lending rates and economic activity. Bank rates had remained stubbornly high after four cuts between December and July.