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Kenya inflation seen close to bottom

Nov 28 2012 19:13 Reuters

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Nairobi - Kenya's inflation rate is expected to edge down this month but it may be close to bottoming out after an 11-month dive that has allowed the central bank to slash interest rates.

All but one of the 11 analysts polled by Reuters predicted the year-on-year inflation rate would fall to a consensus forecast of 3.95% in November from 4.14% last month, laying the ground for another 100-150 basis point cut in official borrowing costs in January.

The forecasts for inflation, due for release on Friday, ranged from 3.0% to 4.25%.

"Inflation may be bottoming out, possibly the November figure will be the trough in the current cycle," said Phumelele Mbiyo, head of regional research for CFC Stanbic bank.

Although the drop is expected to give policymakers room to cut rates in January, respondents said it would not have an immediate impact on the shilling due to the tight hold the central bank is keeping on banking sector liquidity.

The bank has cut its policy rate by a total of 700 basis points since July to 11%, but the shilling has remained largely stable against the dollar, due to the bank's frequent mopping-up of funds from the market.

Analysts cited a more stable exchange rate - the surge in inflation hammered the shilling last year - as well as a small reduction of fuel prices at the pump and stability of some food prices as reasons for the fall in inflation.

Although the shilling inched down against the dollar during the month, it remained broadly within its recent ranges, while the energy regulator cut retail fuel prices by about 1 percent per litre in the middle of November.

The substantial base effects, which have caused the rate to tumble faster than expected for most of this year would however play a bigger role, most analysts said.

"Given that we have been consistently surprised by the inflation releases in recent months, the risk of course is that the inflation print turns out to be even better," said Razia Khan, head of research for Africa at Standard Chartered.
kenya  |  inflation rate  |  economy
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