Kenya Set for First Successive Rate Cut in Four Years
Kenya’s central bank is set to cut interest rates at a second straight meeting for the first time since the Covid-19 pandemic spurred an easing cycle four years ago.
Most economists in a Bloomberg survey expect the monetary policy committee to lower its benchmark gauge by 25 to 75 basis points, with one person expecting no change. The MPC surprised financial markets at its last meeting in August, when it reduced the rate by a quarter point to 12.75%.
The case for a cut is backed by Kenyan inflation having eased to the lower bound of the central bank’s 2.5% to 7.5% target, coupled with a more stable Kenyan shilling, said Stellar Swakei, a senior associate for research at Nairobi-based Standard Investment Bank Ltd. She predicts a 50 basis-point reduction.
Kenyan consumer prices increased at the slowest pace in 12 years in September, when they rose 3.6%, according to the national statistics agency. And the central bank has been suppressing volatility in the shilling to keep the world’s best-performing currency this year from getting too strong.
The shilling has rebounded almost 21% from a January low, when investors worried that Kenya would default on its dollar debt. Since August, the currency has traded between 128 and 130 shillings per dollar.
“A meaningful rate cut would be a prudent step to make capital more affordable and reduce rates on government securities, easing the pressure on national revenues,” Swakei said by phone. “A smaller cut simply won’t deliver the stimulus the economy urgently needs.”
The government has backed calls for cheaper credit, with Treasury Secretary John Mbadi last week citing the impact that favorable weather and government subsidies on farm inputs have had on reining in food costs.
The rate-setting panel should cut rates to “encourage the private sector to uptake more loans to create job opportunities,” he told senators.
The US Fed’s half-percentage-point interest-rate cut last month will also provide room for the MPC to maneuver, as the difference between Kenya’s real policy rate and that of the US is among the highest in the world.
