CBK tipped to cut rates again next month

CBK governor Patrick Njoroge. FILE PHOTO | NMG 

By CHARLES MWANIKI
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Summary

• Analysts see scope for a further cut in Kenya’s Central Bank Rate to eight percent from the current 8.5 percent when the Monetary Policy Committee sits next month.
• In the January meeting last week, the MPC cut the rate by 25 basis points, citing the need to support activity in an economy operating below its potential level.

Central Bank of Kenya has been tipped to make a further cut of at least 25 basis points in the base lending rate next month, to stimulate growth amid looming fiscal consolidation and benign core inflation.

Standard Chartered chief economist for Africa and Middle East Razia Khan said last week that they see scope for a further cut in Kenya’s Central Bank Rate to eight percent from the current 8.5 percent when the Monetary Policy Committee sits next month.

In the January meeting last week, the MPC cut the rate by 25 basis points, citing the need to support activity in an economy operating below its potential level.

“With Kenya’s fiscal policy focus switching to consolidation – involving cuts to discretionary expenditure and tighter revenue administration – we think the CBK will be able to offset pressure on growth by providing more stimulus in the very near term,” said Ms Khan in her East Africa economic outlook briefing last week.

“While the recent locust invasion in East Africa has raised risks to food prices, we nonetheless see scope for further easing, potentially as early as Kenya’s March MPC meeting.”

She added that non-food non-fuel (core) inflation, which features heavily in policy deliberations, points to the absence of meaningful demand-related pressures. “We see headline inflation falling temporarily to sub-three percent in early quarter two-2020 largely on a pronounced base effect.”

Last month, headline inflation retreated to 5.78 percent from 5.82 percent in December.