The Central Bank of Kenya (CBK) is widely expected to leave its benchmark lending rate unchanged when it meets on May 29 despite concern over inflation.
Analysts polled by the Business Daily expect the monetary policy committee (MPC) to leave the rate constant.
The CBK held the base lending rate at 10 per cent at the March meeting despite a slightly weaker shilling and rising inflation.
“Food inflation has been an eye-catching number at +21 per cent year-on-year last month. However, the rains have now arrived and will start to slowly blunt this food price surge… I expect the MPC to look through the food inflation component and leave rates unchanged,” said investment analyst and Rich Management CEO Aly-Khan Satchu. Headline inflation has shot up to 11.5 per cent, well above the preferred ceiling of 7.5 per cent.
“I do not think that the economic fundamentals are right for an increase in interest rates,” said John Kirimi, Sterling Capital Investment director.
“With fuel increase inflation may rise further making it unwise to increase the rate… it may leave the rate where it is until the economic road ahead is clearer.” Kenya’s annual inflation accelerated for the fourth consecutive month to its highest level in five years last month following supply constraints.
“There is definitely competing circumstances (high inflation, low credit growth, risk of economic slowdown, stable shilling) that I believe will support leaving the CBR unchanged,” said Francis Mwangi, head of research at Standard Investment Bank.
Razia Khan, chief economist for Africa at Standard Chartered, said given most of the inflation pressure is confined to food, and given authorities’ plan to reduce food inflation via subsidies, she expects a retention.
“The slowdown in the economy is an additional complicating factor, as is the loan rate cap.’’