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CBK to hold special meeting on September 14

By | September 6th 2011


Central Bank of Kenya will hold an unscheduled meeting of its rate-setting committee on September 14 and analysts said they hoped it was a sign policymakers would tighten policy to win back investors' confidence.

A regular meeting of the bank’s monetary policy committee had been due to take place later in September. The meeting will be in addition to the regular meeting, bank spokesman Samson Burgei said.

Investors have been spooked by volatility in local markets and the Central Bank has been heavily criticised for failing to ramp up its benchmark rate (CBR) for lending to commercial banks, despite surging inflation.

At its last meeting in July, the committee left the rate unchanged at 6.25 per cent, saying inflation, which stood at 16.67 per cent last month, was supply-side driven amid food shortages and high oil prices.

"This is a special MPC (meeting), having seen that the confusion on the supply side is subsiding, we can now assess the situation once more," Governor Njuguna Ndung’u said.

"If you are driving and you sight a pothole, you slow down and swerve to avoid it. This does not mean that you have changed the direction of travel," he said.

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Little Choice

Analysts said the committee had little choice but to raise the rate after Finance Minister Uhuru Kenyatta said monetary stability needed to be restored. "The MPC has to hike the CBR rate.

The finance minister looks as if he is calling the shots," said Aly Khan Satchu, an independent analyst. Average interbank rates soared last month to 28.4 per cent after the bank sought to stop market participants taking positions against the shilling , which has lost nearly 17 per cent against the dollar this year.

Rates fell to 14.1 per cent on Friday after the bank adopted a different formula for calculating its discount window rate, to see off a liquidity crunch that was threatening growth, the government’s borrowing programme and financial system.

"The authorities may now see the benefit of allowing policy rates to adjust instead, as an altogether smoother way of effecting a tightening, hopefully helping to stabilise the shilling, with less inadvertent market fallout," said Razia Khan, head of research for Africa at Standard Chartered Bank. —Reuters

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