Kenya cuts base rate more than expected for third month to stimulate growth

Kenya cuts base rate more than expected for third month to stimulate growth

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Kenya’s central bank cut its benchmark lending rate by a larger-than-expected 75 basis points to 11.25 per cent on Thursday, saying there was room for looser policy to support economic growth as inflation was under control.

It is the third policy meeting in a row where the Central Bank of Kenya has lowered the interest rate. In October it also cut by 75 basis points (bps) after a 25-bps cut in August.

The bank’s Monetary Policy Committee (MPC) said in a statement that “inflation was expected to remain below the midpoint of the target range in the near term, supported by low fuel inflation, stable food inflation, and exchange rate stability”.

OPEC+ members have decided to delay a production increase until April and now oil prices are rising. A Reuters poll of eight economists had a median forecast of a 50 bps rate cut on Thursday.

Kenya’s inflation edged up to 2.8 per cent year-on-year in November, from 2.7 per cent a month earlier, but it remains well within the government’s preferred band of between 2.5 per cent and 7.5 per cent in the medium term.

“The MPC noted economic growth in the first half of 2024 had decelerated and therefore concluded that there was scope for a further easing of the monetary policy stance.”

Kenya’s umbrella banking association had called for a significant cut to the central bank’s policy rate to provide a strong signal to the market and enable a drop in market interest rates. The MPC’s statement observed that short-term rates on government securities had declined sharply in line with its key rate, but it said banks had not responded by lowering their rates proportionately.

“The MPC, therefore, urges the banks to take necessary steps to lower their lending rates in order to stimulate credit to the private sector.”

The bank reiterated its previous growth forecasts for the next two years, 5.1 per cent and 5.5 per cent respectively.

The East African nation’s government, which has been struggling with heavy debt, has been looking for new financing after mass protests in June forced it to scrap planned tax hikes worth more than 346 billion shillings ($2.68 billion).

  • A Reuters report
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