(Recasts with outlook, adds detail, background)
NAIROBI, March 14 Kenya's energy regulator
warned on Wednesday it may raise energy prices in the coming
months after lifting the cost of petrol and kerosene for the
first time since November, complicating the central bank's
decision on when to cut interest rates.
Fuel prices can have a significant impact on inflation
in east Africa's biggest economy and price
reductions in the previous three months for diesel, petrol and
kerosene have helped ease inflationary pressures.
The year-on-year inflation rate fell by more than expected
in February to 16.7 percent from 18.3 percent in January, though
the central bank kept its benchmark lending rate at 18 percent
this month, warning of inflation risks.
While analysts expect the next move in interest rates to be
down, some said the central bank would want to see a sustained
downward shift in inflation before signalling the start of an
Analysts said Kenya's growth and inflation outlook would be
closely linked to its March-May rains, which if plentiful would
lower food and energy prices, while fuel costs could swing on
geo-political tensions over Iran.
"The journey lower in the inflation rate is going to be
sticky," said independent analyst Aly Khan Satchu. "The price of
fuel represents a brutal, high-beta exogenous risk to the
economy. A strong shilling is the wisest policy response."
Following Wednesday's price rise announcement, the cost of
premium petrol in the capital Nairobi will rise 0.37 shillings
to 111.69 shillings ($1.35) per litre from Thursday and kerosene
will increase 0.47 percent. The price of diesel, however, was
trimmed by 0.16 percent.
"In the last several months, there has been a general upward
trend in the price of crude and refined petroleum products in
the international market," the Energy Regulatory Commission said
on Wednesday in its regular monthly review of pump prices.
"This may have a negative impact in subsequent price
reviews," it said.
Kenya's economy is highly dependent on diesel for transport,
power production and agriculture, while kerosene is used by many
households to fuel stoves and lamps.
Transport costs fell 0.91 percent in February from a month
earlier, thanks to previous fuel price cuts by the energy
regulator, slashing the year-on-year inflation rate for the
sector to 15.89 percent from 22.42 percent in January.
Transport accounts for 8.7 percent of the basket of goods
used to calculate inflation.
($1 = 82.4500 Kenyan shillings)
(Reporting by David Clarke; Editing by Richard Lough)