(Bloomberg) -- Kenya’s central bank delivered its biggest interest-rate cut since the pandemic to help boost economic growth, after inflation eased to a 12-year low.
The monetary policy committee reduced the key rate to 12% from 12.75%, Governor Kamau Thugge said in an emailed statement Tuesday. Only one of eight economists polled by Bloomberg had expected a cut of this size. Three forecast a move to 12.25%, three saw 12.5% and one expected rates to stay on hold.
The MPC decided to act as “overall inflation has declined further and is expected to remain below the midpoint of the target range in the near term,” Thugge said. There was scope for further easing to support economic activity after “the sharp deceleration in credit to the private sector, and the slowdown in growth in the second quarter,” he added.
Consumer prices rose an annual 3.6% in September from 4.4% in August. That’s well below the 5% midpoint where the central bank prefers to anchor expectations.
Kenya joins other central banks — including South Africa and Ghana — who have eased monetary policy since the Federal Reserve cut rates last month, potentially relieving pressure on African governments struggling to spur economic activity despite high borrowing costs.
Economic growth in the East African nation decelerated to 4.6% in the second quarter. That’s the slowest rate since the end of 2022 and compares with 5% in the first three months of this year. “The projected growth of the economy in 2024 has therefore been revised to 5.1% from 5.4%,” Thugge said.
Kenya’s shilling has rallied 21% against the dollar this year, making it the best performing currency in the world, according to data compiled by Bloomberg. The gains were partly driven by the refinancing of Kenya’s June 2024 eurobond.
Foreign-exchange reserves currently stand at $8.2 billion, thanks to central bank buying of foreign currency. That’s equivalent to 4.2 months of import cover, above the four-month threshold.
The reserves are seen getting a boost from expected dollar inflows, including a much-delayed disbursement from the International Monetary Fund once reviews are completed. The nation is also in talks for $1.5 billion budget support funding from Abu Dhabi.
Kenya requires about $1.5 billion annually to cover interest repayments alone and another $26 billion over the next decade for principal amounts, according to Treasury data.
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(Updates with more details. An earlier version of this story corrected the median estimate of economists prior to the rate decision.)
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