Kenya seen cutting rates by 200 basis points

Mon Nov 5, 2012 1:55pm GMT

By Kevin Mwanza

NAIROBI (Reuters) - Kenyan policymakers are expected to slash the central bank's lending rate by two percentage points at their November meeting, to lower lending costs and give the economy a vital boost, a Reuters poll showed on Monday.

The central bank's rate-setting committee, which embarked on a monetary easing cycle in July, is scheduled to meet on November7, amid on-target inflation and a stable exchange rate.

The 12 analysts and market participants surveyed said they expected the committee to cut the benchmark Central Bank Rate (CBR) by a median forecast of 200 basis points to 11 percent. They have cut the rate by a total of five percentage points over two meetings since July.

"With inflation likely to remain in low single digits for a while, and the KES stable thanks to the sterilisation of liquidity... the CBK will be comfortable cutting interest rates by a sizeable amount yet again," said Razia Khan, head of research for Africa at Standard Chartered in London.

Year-on-year inflation fell to 4.14 percent last month from 5.32 percent in September, after food prices rose at a slower pace than the previous month.

A senior Treasury official told Reuters last week that inflation was "where we want it to be". The Treasury has an inflation target of 5 percent over the medium-term.

Geoffrey Mwau, who is the economic secretary at the ministry of finance said despite the drop in inflation, easing was likely to be gradual to ensure credit expansion does not outpace growth in the real economy, to avoid overheating.

The prevailing stability in the exchange rate could however create ample room for the Monetary Policy Committee (MPC) to adopt a very dovish stance in order to boost economic growth, one analyst said.   Continued...

Central Bank of Kenya July 12, 2001. AN
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