Kenyan central bank holds rates, sees inflation risks

NAIROBI, KENYA: Kenya's central bank held its benchmark lending rate at 11.50 percent for the second time in a row on Tuesday, saying inflation had fallen towards its medium-term target.

But the bank's Monetary Policy Committee (MPC), whose decision was expected by the markets, warned that sustained turbulence in global financial markets and projected heavy rains at home could pose risks to the outlook for inflation.

"Its (turbulence in global markets) impact on the exchange rate should be monitored," the MPC said in a statement.

The committee said in a statement the measures it had taken in previous sittings had helped lower inflation towards its target of 5 percent.

"However, the forecasted El Niño rains could disrupt food supply chains and exert pressure on food prices in the short term," the committee said.

Razia Khan, head of research for Africa at Standard Chartered in London, said the MPC's worries over global volatility and the projected heavy rains justified another hike before the year ends.

"We still think there is room for a rate hike of 50 basis points in November," she said, adding any further pressure on the exchange rate could make an increment even more likely.

The shilling is down 14 percent against the dollar this year mainly due to a firmer greenback. But it has fared better that other currencies in the region like the Ugandan shilling, which is down by a quarter.

Traders said the shilling, which closed at 105.60/70 per dollar before rates were set, did not react immediately to the hold decision in after hours trading abroad.

Policymakers embarked on a tightening cycle in June, raising rates by a total of 300 basis points over two meetings, before pausing in August.

Thirteen of 15 analysts polled by Reuters had forecast that the bank would keep its benchmark lending rate at 11.50 percent.