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Will Central Bank cut lending rate?

By | May 3rd 2012


The Central Bank committee that determines the direction interest rates take will today be under the spotlight as it sits down to signal which way for the cost of credit.

While economists say it is likely that the Monetary Policy Committee (MPC) will keep the rate – known as the Central Bank Rate (CBR) – at 18 per cent given the prevailing economic conditions, concern is mounting that economic growth prospects could be missed.

However, inflation rate slowed last month to its lowest level since May last year according to data from Kenya National Bureau of Statistics.

The inflation rate fell by far more than expected to 13.06 per cent last month from 15.61 per cent in March, despite a 1.21 per cent increase in food prices from a month earlier.

But while that is the case, the possibility of a rise in crude oil prices – which is beyond Treasury’s control –could revert the gains made on Taming the cost of living and trigger foreign exchange volatility.

"MPC could vote to have a minimal cut or retain the Central Bank Rate at 18 per cent," Evans Mugi Research Analyst at Genghis Capital.

If MPC retains the current rates at 18 per cent, then there is a possibility of a drop in consumer spending as the cost of credit will remain high.

Slow lending will reduce the level of imports of inputs needed to produce goods for export – a development that is bound to lead to foreign exchange volatility.

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