Kenya central bank holds benchmark lending rate at 10.0 percent

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Kenya shilling coins and notes are pictured inside a cashier's booth at a forex exchange bureau in Kenya's capital Nairobi, April 20, 2016. REUTERS/Thomas Mukoya
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By George Obulutsa

NAIROBI (Reuters) – Kenya’s central bank held its benchmark lending rate at 10.0 percent on Monday, as expected, and said it expected inflation to remain within the government’s short-term target of 5 percent.

The economy is also performing strongly, with 6.2 percent growth in the second quarter of 2016, it said in a statement.

The government sees Kenya’s economic growth slowing to just over 6 percent next year, down from an initial forecast of 6.5 percent, mainly because of slowing private-sector credit growth.

In a Reuters poll last week, 12 analysts had expected the central bank to hold its benchmark rate at 10 percent while two had predicted a cut of 50 basis points and one saw a cut of 100 basis points.

At its last meeting in September, Kenya’s Monetary Policy Committee had cut the benchmark rate by 50 basis points, citing concerns over sluggish credit growth.

“The slower (credit) growth witnessed over the last several months was found to be largely an outcome of structural factors in the banking sector rather than monetary policy,” Monday’s statement said. “However there is no evidence that this is having a negative impact on economic growth.”

A law that came into effect in mid-September capped commercial loan rates at 400 basis points above the benchmark rate. Banks strongly opposed the law, saying they needed high interest income to offset the risks of lending.

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The bank said there was not enough data yet to draw conclusions about the law’s effects, but noted that private sector credit growth had stabilised at 4.6 percent in October, and that banking system liquidity had also stabilised.

The bank said the foreign exchange market continued to draw support from a narrowing current account deficit prompted by lower prices of petroleum imports, lower machinery and equipment imports and also by the flow of remittances from Kenyans abroad.

(Editing by Katharine Houreld and Gareth Jones)

 

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