* 3-month annualised inflation hit 9.2 pct in April from 7.7
pct in March
* Bond yields have fallen this year as inflation slows
* Shilling has recovered from October record low on tight
(Adds analyst comment, detail, background)
By David Clarke
NAIROBI, May 3 Kenya's central bank held its
benchmark lending rate at 18 percent for a fifth month in a row
on Thursday as expected, saying lingering price pressures still
needed to be squeezed out of the economy.
The Central Bank of Kenya's Monetary Policy Committee
(MPC)said even though the year-on-year inflation rate fell to
13.06 percent in April from 15.61 percent in March, underlying
food and fuel price pressures had increased.
The central bank, which was widely criticised for being to
slow to raise rates when inflation surged last year, has been
especially cautious so far this year, repeatedly flagging risks
to the inflation outlook and high credit growth.
The consensus forecast in a Reuters poll of 12 analysts was
for the Central Bank Rate to be held at 18 percent.
The decision came after the market close, though analysts
said it was likely to support the shilling against the dollar as
the April inflation data had boosted expectations the central
bank might start an easing cycle this month.
"The decision to keep interest rates on hold today does not
alter the view that we will see a significant rally in Kenyan
bonds over the medium term, as the policy rate is gradually
normalised over the coming years," said Razia Khan, head of
research for Africa at Standard Chartered Bank.
"This should lend some support to the Kenyan shilling, even
as interest rates come down from their current highs," she said.
A central bank survey for April showed that the private
sector expected inflation to keep declining, the exchange rate
to stay stable and the economy to remain resilient, but
policymakers said price rises needed to slow further.
"These considerations showed that there is still some
lingering pressure on inflation that could give rise to adverse
inflationary expectations," the MPC said in a statement.
"These must be addressed to facilitate a return to high
economic activity supported by a low inflation regime," it said.
CURRENT ACCOUNT GAP GROWS
The central bank reiterated that private credit growth
needed to come down. A surge in credit last year boosted import
purchases. Coupled with high fuel import prices, this put
pressure on the currency and increased the trade deficit.
The bank said the current account deficit widened to 13.6
percent of gross domestic product in March, and this continued
to pose a threat to both exchange rate stability and future
easing of inflation pressures.
While private sector credit growth has slowed this year, it
was still running at 24 percent in March.
"Private sector credit growth is ... still too quick for
their liking and I don't see them cutting until they have that
under control," said Duncan Kinuthia, head of trading at
Commercial Bank of Africa.
"Otherwise, they'll run into the same issues they had last
year, the exchange rate could come under threat, balance of
payments and so on," he said.
The central bank in Uganda faced a similar situation to
Kenya at the start of the year. It cut its benchmark lending
rate in both February and March, but the currency slumped after
the second cut, risking an increase in imported inflation.
The Bank of Uganda has since held the rate unchanged at 21
percent, a move that has helped the currency gain ground.
Some analysts, however, said the Kenyan central bank was
getting policy wrong again, this time by being too cautious
after missing the tightening boat in 2011.
"I think the central bank are being overly conservative and
that they should have been cognisant of the sharp move in market
rates. In some respects, this decision is as egregious as the
decision not to hike was last year," said independent
Nairobi-based analyst Aly Khan Satchu.
For the full MPC statement, click on
For more analyst comments, click on
(Additional reporting by Beatrice Gachenge, Richard Lough,
Kevin Mwanza and George Obulutsa)