(Bloomberg) -- Kenya’s central bank kept its benchmark interest rate unchanged for a second meeting in a row as it expects inflation to remain within its target range in the near term, supported by lower food prices.
The monetary policy committee held the rate at 10.5%, Governor Kamau Thugge said Tuesday in an emailed statement. That matched the median estimate of 11 economists in a Bloomberg survey.
The unchanged stance is the second since Thugge became governor in June and follows recent holds in other emerging markets such as Ghana, the Philippines, Indonesia, Taiwan and South Africa, where policymakers struck a cautious tone after a meeting of the Federal Reserve last month. The US central bank left its benchmark rate unchanged on Sept. 20 but signaled borrowing costs will likely stay higher for longer after one more hike this year.
Kenya’s 10-year Eurobond extended losses after the decision was announced, with the yield increasing 54 basis points to 12.98% by 6:39 p.m. in Nairobi.
The MPC lift the key rate unchanged because inflation is expected to remain within the 2.5% to 7.5% target range in the near term, helped by improving supply of key items — particularly corn because of ongoing harvests, and sugar through imports, Thugge said.
What Bloomberg Economics Says...
“The decision to hold suggests that the central bank is comfortable inflation will remain within the 2.5-7.5% target in the short term, despite the currency coming under depreciation pressure. This is also a reprieve for the economy which is taking strain from a tight policy environment.”
— Yvonne Mhango, Africa economist
Annual inflation in the East African economy unexpectedly quickened to 6.8% last month from 6.7% in August, stoked by higher international oil prices and a weak shilling. The shilling has depreciated almost 17% against the dollar this year and is on track for its steepest decline since 2008, when the nation was hit by deadly post-election violence.
Diminishing foreign-exchange reserves, deteriorating balance of payments, concerns over repayment terms of a $2 billion Eurobond maturing in June 2024 and rising global interest rates that have increased the cost of debt service are fueling the currency depreciation.
Foreign-exchange reserves stood at $6.9 billion, equivalent to 3.7 months of import cover, compared with $7.3 billion as at Aug. 9.
- Interbank market activity has increased and volatility in interbank interest rates has reduced since the introduction of a corridor of 250 basis points around the central bank rate in August.
- Growth in private-sector credit increased to 12.6% in August, compared with 10.3% a month earlier, largely due to strong demand from the manufacturing, transport and communication sectors.
- The asset quality of banks continued to deteriorate as the volume of non-performing loans increased to 15% in August from 14.2% a year earlier.
- The current account-deficit is estimated at 3.7% of gross domestic product in the 12 months to August and is projected to narrow to 4.1% of GDP in 2023 from 5.1% of GDP last year.
--With assistance from Simbarashe Gumbo.
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