Kenya central bank slashes rates
Published: Jul 29, 2010 00:19 Updated: Jul 29, 2010 00:19
NAIROBI: Kenya's central bank unexpectedly slashed its benchmark lending rate to 6.00 percent from 6.75 percent on Wednesday to boost commercial bank lending, defusing market concerns that market rates were about to rise.
The bank's Monetary Policy Committee said it wanted to send a strong signal to commercial banks that the economic outlook was rosy, with low risks to inflation and growing confidence in east Africa's largest economy.
Only one analyst out of seven polled by Reuters last week had predicted Wednesday's MPC meeting would produce a cut.
Despite a slump in 91-day and 182-day Treasury bill yields to below 2 percent this year, banks' commercial lending rates remained stuck above 14 percent in June and the bank's governor has repeatedly urged them to cut further and boost lending.
"He has wrong-footed everybody. I think the central bank is experimenting with (the governor's) version of economic shock therapy after a period of trying the gentle art of persuasion," said Aly Khan Satchu, an independent analyst based in Nairobi.
The Central Bank of Kenya said in a statement that upside risks to inflation remained low given an adequate supply of food, exchange rate stability and low energy prices.
Kenya's year-on-year inflation has been mostly on an easing trend since May 2009 and came in at 3.2 percent in June as food prices dipped, well below the bank's medium-term target of 5 percent.
The bank also said indicators showed the economy was continuing to strengthen and growth in the second quarter would be comparable with the 4.4 percent year-on-year expansion seen in the first-quarter of 2010.
