Analysts see the Central Bank of Kenya cutting key interest rates by at least 25 basis points before the end of the year due to low inflation rates and the need to stimulate flagging economic activity.
The Monetary Policy Committee, the highest decision-making body at the Central Bank of Kuwait, has cut its key lending rate by a percentage point since August, but most commercial banks have yet to reflect this in loan pricing.
However, analysts from 14 of the world’s leading banks, consultancy firms and think tanks say there is scope for further easing of the central bank’s interest rate when the Monetary Policy Committee meets in December.
Barcelona-based FocusEconomics, a macroeconomic research firm, says the consensus from views drawn from 14 institutions is that policy rates will fall below the current rate of 12 percent, but will accelerate in 2025.
“Looking ahead, we expect the Central Bank of Kuwait to continue cutting interest rates. The report quoted Goldman Sachs analysts Andrew Matheny and Mambona Njie as saying that risks are leaning towards more early cuts amid weak economic data and stable foreign currencies. Supported by improving external balances, a more favorable global pricing environment and Vinayak Air.
Lowering the prime lending rate is expected to lower the cost of borrowing as commercial lenders use the rate as a base to charge their margins and individual risks when pricing loans.
The resulting decline in the cost of loans is expected to prompt consumers to use the money for investment and consumption, boosting economic activities.
However, banks have come under pressure from President William Ruto and Treasury Minister John Mbadi, not to send the signal the regulator gave in early August when it cut its benchmark interest rate by 0.5 percentage points.
This came as credit flow to businesses grew by 3.7% in July, the slowest pace since 2017 when interest rate controls were imposed.
“Lending to the private sector is a task that I would like to entrust to you (banks),” he said. President William Ruto told bankers on Wednesday that private sector credit grew by just 1.3 percent in August, which is insignificant.
“We want the private sector to do more and we know what we need to do as a public sector. We do our part, you do your part.”
Before the central bank’s interest rate cut in August, the MPC raised interest rates by 5.5 percentage points from the start of tightening in May 2022 until July 2024 to manage inflationary expectations by keeping the cost of borrowing high.
The apex bank used this tightening not only to exert price pressures on the demand side by urging households and companies to postpone borrowing to finance non-urgent expenditures, but also to attract inflows from foreign investors, thus boosting foreign exchange inflows.
Inflation fell in September to its lowest level since December 2012 at 3.6%, keeping the cost of living within government targets of between 2.5% and 7.5% over the medium term.
On the other hand, official foreign exchange reserves had, by last week, reached $950 million (about Sh122.55 billion) since the last week of August to $8.30 billion (Sh1.07 trillion), or 4.3 months of import cover, from $7.35 billion ( 948 shillings). 15 billion), or 3.8 months of import coverage.
“Kenya cut its interest rate by 75 basis points and continued low inflation coupled with an improving external environment means Kenya will introduce further monetary easing over the coming months,” David Omogomolo, Africa economist at UK-based Capital Economics, wrote in a note.
Inflation is expected to remain under control for at least the next month after fuel prices fell to their lowest levels in 19 months. Gas station prices have a major impact on inflation in an economy that relies heavily on diesel for transportation, power generation and agriculture, while motorists largely use gasoline.
“Kenyan motorists have benefited from lower Brent crude prices in recent months, which has trickled down to local pump prices,” Shani Smit-Lington, an analyst at Oxford Economics, was quoted in a Focus Economics forecast report.
“Given that we expect global oil prices to remain on a downward trajectory in the near term, we expect fuel price inflation to remain subdued.”
Comments are closed, but trackbacks and pingbacks are open.