Wednesday, November 7, 2012

Kenya cuts rate 200 bps as inflation continues to drop

    The central bank of Kenya cut its Central Bank Rate (CBR) by 200 basis points to 11 percent, as widely expected, saying a drop in inflation to its target path,  growing private sector credit and a stable exchange rate had given it room to reduce rates.
    The slowdown in the global economy, volatile oil prices and a high current account deficit were the main risks to Kenya's economic outlook, the bank said in a statement after a meeting of its Monetary Policy Committee.
    Economists had expected the central bank to again cut rates following a further fall in inflation to 4.14 percent in October from September's 5.32 percent and August's 6.09 percent. The government and  central bank's upper inflation band is 7.5 percent.
    "These developments support a low and stable outlook for inflation," the central bank said.
    The bank also said the exchange rate had remained stable in October and the level of foreign exchange reserves rose to the equivalent of 4.14 months of imports.

    Commercial banks' lending rates had also eased slightly following recent rate cuts and the ratio of gross non-performing loans to total loans had only increase marginally to 4.6 percent from 4.5 percent between August and September, reflecting "low credit risk in the banking sector," the bank said.
    After embarking on an aggressive rate hike campaign in September last year to reduce inflation that peaked in November at 20 percent, the central bank reacted to slowing economic growth this year and easing inflation and has now cut rates by a total of 700 basis points this year.


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