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CBK to boost economy with rate cut, analysts say

BUSINESS
By Rawlings Otini | March 19th 2020

 

The Central Bank of Kenya (CBK) is expected to cut interest rates next week to support the economy amid the Covid-19 crisis despite inflation and exchange rate pressures, and analysts poll shows.

Economists said a cut would boost private sector credit growth, which closed in 2019 at 7.1 per cent and CBK had remained optimistic of a gradual increase into 2020 after the removal of interest rate caps.

Analysts at Genghis Capital anticipate the CBK’s Monetary Policy Committee (MPC) to cut the benchmark rate by 75 basis points to 7.5 per cent in the Monday meeting on the back of mounting global risks.

“Despite this, we expect any decision on a rate cut will not bear the intended consequence on the economy as monetary policy easing is unlikely to solve a complication brought about by a healthcare crisis,” Genghis Capital said in a note to investors.

Cytonn Investment’s Rodney Omukhulu expects CBK to cut rates by 25 basis points to eight per cent.

Traders at Suntra Investment Bank said the prevailing business environment needs a boost in money supply to support optimism.

“I expect a rate cut despite elevated currency and inflation pressures,” said the bank’s Michael Mwakio.

Inflation rose to 6.4 per cent in February but could rise as the desert locust invasion exerts pressure on the food component of the CPI basket, analysts said.

Low oil prices are expected to continue with the anticipation that the Energy and Petroleum Regulatory Authority will lower fuel pump prices in the April review in line with the latest developments.

This is expected to reduce pressure on the economy despite the impact that low oil prices may have on key economies.

Covid 19 Time Series

 

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