* Says inflation within target
* External risks to macro-economy persist
(Adds details, background)
By George Obulutsa and Kevin Mwanza
NAIROBI, Sept 3 Kenya's central bank held its
key lending rate at 8.50 percent on Tuesday, in
line with market expectation, saying inflation was within an
acceptable margin of its medium target.
A Reuters poll ahead of the decision had forecast Kenyan
policymakers would leave the bank's benchmark rate unchanged
until at least the end of the year to help counter inflationary
pressures and a bearish currency.
The bank's Monetary Policy Committee said the short term
outlook for inflation was stable. The new VAT bill which came
into effect this week would, it said, contribute inflationary
pressures, but these were expected to be mild.
"The Committee concluded that there were no demand-driven
inflationary pressures which would require a revision of its
monetary policy stance," the MPC said in a statement.
Kenya, east Africa's biggest economy, is projected to grow
5.8 percent this year from 4.6 percent in 2012.
There were, however, festering risks to its macro-economic
outlook emanating from the political instability in the Middle
East and North Africa, which the MPC said had led to higher oil
prices and could hurt Kenya's important forex-earning tea
"These developments coupled with the high current account
deficit remain a threat to macroeconomic stability," the MPC
said in a statement.
The bank said the Treasury's borrowing programme was on
target and not putting pressure on interest rates. Movements in
short-term rates were aligned to the central bank rate, the MPC
"This suggests a degree of comfort with current short-term
yields," Razia Khan, head of Africa research at Standard
Chartered bank. "The CBR itself is seen on hold at least until
the end of the year."
Mark Bohlund, senior economist for sub-Saharan Africa at IHS
Global Insight, agreed, pointing to the central bank's
consistent policy stance over the past few months.
"Nonetheless, both domestic and external developments
indicate that the Central Bank of Kenya will move towards
tightening its policy stance in 2014."
Treasury Secretary Henry Rotich said on Tuesday Kenya may
seek as much as $2 billion from its debut Eurobond issue, double
the previously stated $1 billion, an amount analysts said could
be expensive to borrow.
The rate decision came after the local currency market
closed. Traders had said they expected the shilling to weaken
towards its support level of 87.70 to the dollar in the event of
(Editing by Richard Lough, Ron Askew)