The Central Bank of Kenya reduced its key lending rate by 350 basis points to 13 percent, a move that many financial analysts expected be less. The measure was conducted in the midst of declining inflationary issues and exchange rate stability.
Earlier this week, Bloomberg News reported that the Kenyan central bank would cut its benchmark lending rate by 2.5 percentage points to 14 percent. This reduction is being labelled as a way to protect the largest economy in East Africa.
During a Monetary Policy Committee meeting Wednesday, the Central Bank of Kenya (CBK) Governor Governor Njuguna Ndung’u announced that the key lending rate would be reduced to 13 percent by 350 basis points. In a monetary policy statement, Ndung’u noted that global oil and food prices remained a risk to the macroeconomic stability of the economy.
Since the last meeting on Jul. 5, 2012, overall inflation fell by 6.09 percent in August. The inflation figure was in the targeted 7.5 percent set by the Kenyan government in the fiscal year of 2012-2013.
“The Committee also recognized that there remain risks to those elements relevant to monetary policy in maintaining macroeconomic stability,” said Ndung’u in a statement. “These include vulnerability to international oil prices and any likely impact of drought affecting world food prices. The slowdown in global economic growth was also noted to have a dampening effect on both domestic growth and the balance of payments. Going forward, the CBK will continue to monitor these risks and take appropriate actions.”
The Kenyan shilling hit a two-month low following the CBK announcement. At the close of the day’s trading session, the shilling was at 84.65 per dollar.
Uganda bank rate cut
Meanwhile, the Bank of Uganda also reduced its central bank rate Tuesday by 200 percentage points to 15 percent. Kenyan central bank Governor Emmanuel Tumusiime told reporters the decision was made in order to encourage economic growth and play a part in reducing commercial bank lending rates.
Inflation was also down in Uganda as it fell from 14.3 percent to 11.9 percent due to a decline in food prices and decreases in other inflationary aspects.
“Monetary policy will continue to focus on stimulating a recovery in aggregate demand in order to boost real growth while at the same time guarding against any resurgence in inflation,” the central bank governor in a statement.