Market News
Kenya cuts main rate more than expected to stimulate growt - REUTERS
Key Points
- Inflation well within target band
- CBK flags slower growth in first half
- Growth forecasts for 2024, 2025 unchanged
NAIROBI, Dec 5 (Reuters) – Kenya’s central bank cut its benchmark lending rate by a larger-than-expected 75 basis points to 11.25% on Thursday, saying there was room for looser policy to support economic growth as inflation was under control.
It is the third policy meeting in a row where the Central Bank of Kenya has lowered the interest rate. In October it also cut by 75 basis points (bps) after a 25-bps cut in August.
A Reuters poll of eight economists had a median forecast of a 50 bps rate cut on Thursday.
The bank’s Monetary Policy Committee (MPC) said in a statement that “inflation was expected to remain below the midpoint of the target range in the near term, supported by low fuel inflation, stable food inflation, and exchange rate stability”.
Kenya’s inflation edged up to 2.8% year on year in November, from 2.7% a month earlier, but it remains well within the government’s preferred band of 2.5%-7.5% in the medium term.
“The MPC noted economic growth in the first half of 2024 had decelerated, and therefore concluded that there was scope for a further easing of the monetary policy stance.”
Kenya’s umbrella banking association had called for a significant cut to the central bank’s policy rate to provide a strong signal to the market and enable a drop in market interest rates.
The MPC’s statement observed that short-term rates on government securities had declined sharply in line with its key rate, but it said banks had not responded by lowering their rates proportionately.
“The MPC, therefore, urges the banks to take necessary steps to lower their lending rates in order to stimulate credit to the private sector.”
The bank reiterated its previous growth forecasts for the next two years, 5.1% and 5.5% respectively.
The East African nation’s government, which has been struggling with heavy debt, has been looking for new financing after mass protests in June forced it to scrap planned tax hikes worth more than 346 billion shillings ($2.68 billion).
($1 = 129.0000 Kenyan shillings)
(Reporting by George Obulutsa; Editing by Alexander Winning, Alexandra Hudson and Andrew Heavens)
