* Kenyan inflation quickens faster than expected
* Ugandan inflation rate hits 26-month low
(Wraps Kenyan, Ugandan inflation, adds analysts)
By Richard Lough
NAIROBI, Feb 28 Kenyan inflation quickened
faster than expected in February, data showed on Thursday,
raising expectation policymakers will leave the central bank
rate (CBR) unchanged in March.
Headline inflation in neighbouring Uganda fell to its lowest
level in 26 months but underlying inflation was still above
Where inflation in Kenya heads in the near term will depend
largely on whether next Monday's tight presidential election is
peaceful or unleashes a repeat of the weeks-long nationwide
violence that followed a disputed vote in 2007.
The markets appear optimistic. Kenya's shilling rose to its
highest level so far this year on Thursday as investors bet on a
smooth handover of power.
The stock market in east Africa's biggest economy is also up
more than 9 percent in 2013.
Consumer prices in Kenya rose 0.7 percent in February,
driven by a 1.29 percent rise in food and non-alcoholic beverage
costs and pushing the year-on-year rate of inflation
to 4.45 percent.
"Inflation is ticking up, interest rates are ticking up and
the CBR is at 9.5 percent. It's a phase where the central bank
will pause," said Ignatius Chicha, head of treasury at Citi in
Kenya, referring to the policy rate.
While a rate hold might be most prudent, a small cut could
not be ruled out given "the still depressed economic outlook,"
said Mark Bohlund, senior economist for sub-Saharan Africa at
IHS Global Insight.
A Reuters poll of 11 analysts and traders had given a median
forecast for inflation to accelerate to 4.30 percent. The
government's medium-term target for inflation is 5 percent, plus
or minus two percentage points.
Inflation in Kenya peaked at just under 20 percent in late
2011 then fell steadily to 3.20 percent last December, helped by
tighter monetary policy and lower food prices.
However, inflation bottomed out in January and election
campaign spending combined with a weaker shilling had been seen
pushing the rate up in February.
EYES ON VOTE
Aly Khan Satchu, an independent economist in Nairobi, said
February's rate reflected a "tsunami of election-related
spending" across the country.
Kenya's two leading presidential candidates are expected to
spend a combined $340 million, a record for Kenyan elections.
Voters will also cast ballots in parliamentary and regional
elections on March 4.
Violence however cannot be ruled out, diplomats and
political analysts say, with rival alliances forged once again
along ethnic divides. The last bout of post-election violence
convulsed the economy and hammered the shilling, sending prices
higher, before a political deal spurred a shilling rally.
Inflation data in May would give a clearer direction on the
central bank's monetary policy direction, Citi's Chicha said.
In neighbouring Uganda, a 2 percent year-on-year fall in
food prices helped slow headline inflation to 3.4 percent, its
lowest level since December 2010.
However, the core rate of inflation, which excludes food
crops, fuel, electricity and metered water, fell only marginally
to 5.5 percent from 5.6 percent in January and was likely to
keep trending above the central bank's 5 percent medium-term
"In spite of sluggish economic growth, the (central bank)
will have limited scope to further stimulate the economy without
further impairing its relatively short track record as an
inflation-targeting central bank," Bohlund said.
(Additional reporting by Beatrice Gachenge and Drazen Jorgic in
Nairobi and Elias Biryabarema in Kampala; Writing by Richard
Lough; Editing by Ruth Pitchford)