Central Bank to cut interest rates in a few months- Poll


Central Bank to cut interest rates in a few months- Poll

Kenya’s central bank will cut interest rates in a few months, a Reuters poll found, because the economy is one of the few in the commodity-driven continent benefiting from lower oil prices.

While many emerging economies are hiking interest rates to counter a resilient dollar that is feeding domestic inflation, Kenya is just months away from cutting interest rates as consumer prices slow.

The Central Bank of Kenya (CBK) is expected to cut rates in the third quarter by 50 basis points to 11.00 percent and then chop another 75 basis points in the fourth. All but one of the 13 economists surveyed by Reuters said there would be no move on Monday.

The bank raised rates by a total of 300 basis points in June and July last year after exchange-rate volatility shot up and inflation threatened to take off.

“After the deceleration of prices in February, inflation expectations are beginning to turn,” said Rafiq Raji, managing director at Macroafricaintel Investment. “Thus at this meeting, we see members voting to keep the benchmark rate unchanged.”

Kenyan inflation fell to 6.84 percent last month, its slowest rate since October. It is expected to average 6.7 percent this year and ease to 6.1 percent next year.

Other emerging market nations that are net oil importers have failed to gain much benefit from lower crude prices because economic weakness has sapped their currencies.

Yet the shilling has been one of the strongest emerging market currencies in the past three months.

“The shilling has been quite stable in recent months, we think it will probably remain that way for the coming few months. As long as that happens, imported goods prices should be stable,” said John Ashbourne of Capital Economics in London.

Ashbourne said Kenya stood to keep gaining from lower oil prices.

A Reuters poll shows oil averaging just over $40 a barrel this year due to subdued demand and doubts that a tentative agreement by leading producers to freeze output will do much to drain a supply glut.

The economy is expected to grow 5.8 percent this year and 6.3 percent next, outpacing commodity-driven Nigeria and South Africa.

Kenya’s economy grew 5.8 percent in the third quarter of this year, boosted by construction and agriculture and helped by a more gradual decline in tourism compared to last year.

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