Tuesday, November 1, 2011

Central Bank of Kenya Hikes rate 550bps to 16.50%

The Central Bank of Kenya upped its benchmark lending rate by 550 basis points to 16.50% from 11.00% previously, and raised the Cash Reserve Ratio 50 basis points to 5.25%.  The central bank Governor, Njuguna Ndung'u, said: "Inflation continued to rise while exchange rate volatility persisted in October 2011. Consistent with the monetary policy stance taken by the last MPC meeting, there is therefore a need for further tightening of monetary policy to tame these inflationary pressures and stabilize the exchange rate."

At its previous meeting the CBK increased the interest rate by 400bps to 11.00%, after raising 75bps in September, and previously increased, and subsequently decreased the discount window rate by 75 basis points to 6.25%.  The Kenyan central bank last increased the benchmark lending rate by 25 basis points in May this year.  

Kenya experienced annual headline inflation of 18.91% in October, up from 17.3% in September, 16.7% in August, up from 15.5% in July, and up sharply from 9.19% in March this year, according to inflation data from the Kenya National Bureau of Statistics.  The Central Bank of Kenya has an inflation target of 5 percent.  

Kenya reported seasonally adjusted GDP growth of -4.6% in Q2, compared to +2% in Q1.  
A Kenyan Ministry of Finance official noted that Kenya is expected to record economic growth around 5-5.5% this year, and 6% next year.  

The Kenyan Shilling (KES) has weakened about 23% against the US dollar so far this year; the USDKES exchange rate last traded around 98.4.


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