(Adds detail, background)
By Drazen Jorgic
NAIROBI, Sept 3 Kenya's central bank on
Wednesday held its key lending rate at 8.50
percent, saying there was no fundamental pressure on inflation
even though it has risen to its highest level since June 2012.
The rate has remained unchanged since May 2013, and the
decision by the bank's Monetary Policy Committee (MPC) was
broadly expected by analysts, some of who predict a rate hike by
the end of this year or in early 2015.
"The committee concluded that the monetary policy measures
in place coupled with the effective liquidity management
operations will continue to moderate any pressures that might
give rise to adverse inflation expectations," the Central Bank
of Kenya (CBK) said in a statement.
The bank said inflation was likely to ease next month when
the impact of the September 2013 introduction of VAT to various
goods and services disappears, a forecast broadly in line with
sentiments of economists.
Kenya's inflation rate rose to 8.36 percent in August from
7.67 percent in the previous month.
Mark Bohlund, a London-based economist at IHS Global
Insight, said the bank's decision to hold rates suggested it was
mainly focused on supporting economic growth.
"I still expect the CBK to hike the CBR (central bank rate)
in the first half of 2015 as above-target inflation persists and
private-sector credit growth remains substantially in excess of
nominal GDP growth," he said.
Economic growth in East Africa's biggest economy has lagged
regional rivals this year and in June the World Bank shaved 50
basis points off Kenya's growth forecast for 2014, citing poor
rains and growing insecurity.
Kenya has been hit by a spate of gun and grenade attacks in
recent months, blamed on Islamists from neighbouring Somalia,
hurting the vital tourist industry which is one of Kenya's main
sources of hard currency.
(Editing by James Macharia and Alison Williams)