Kenya cbank makes record interest rate cut

NAIROBI (Reuters) - Kenya's central bank cut its key lending rate by a record 350 basis points to 13 percent on Wednesday, broadly in line with market expectations, against a background of declining inflationary pressures and exchange rate stability, it said.

However, international oil and food prices remained a risk to the macroeconomic stability of the region's biggest economy, Governor Njuguna Ndung'u said in a monetary policy statement.

"The slowdown in global economic growth was also noted to have a dampening effect on both domestic growth and the balance of payments," he said.

The Kenyan shilling firmed after the rate cut, trading at a settled price of 84.75 per dollar from 85.05 prior to the announcement, Thomson Reuters data showed.

All nine analysts polled by Reuters expected the central bank to cut its policy rate after year-on-year inflation fell for the ninth straight month in August to 6.09 percent, the lowest since January 2011, and a sharper fall than analysts' expectations.

The analysts had expected a cut of a median 300 basis points.

Kenya ramped up the central bank rate by 11 percentage points in the last quarter of 2011 to 18 percent after inflation surged towards 20 percent, and held it there for seven consecutive months, before cutting it to 16.5 percent in July.

That, however, came at the expense of economic growth which slowed to 3.5 percent in the first quarter of 2012 from 5.1 percent a year earlier, the slowest first quarter growth since 2008.

"The 350 basis point cut indicates a sizeable shift by the (central bank) towards supporting growth amid a sustained deterioration in global economic conditions," said Mark Bohlund, senior economist for sub-Saharan Africa at IHS Global Insight.

Razia Khan, head of Africa research at Standard Chartered, said there was still room for more monetary easing but that future cuts in the easing cycle might not be as aggressive.

"There is room to keep easing rates in Kenya, and another 400 bps of easing in this cycle looks almost a done deal. But the pace of that easing, and the willingness to do even more, will be governed by new developments," Khan said.

Source: http://news.yahoo.com/kenya-cbank-makes-record-interest-rate-cut-130220766--sector.html

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