September 3, 2014 / 3:02 PM / 3 years ago

UPDATE 1-Kenya holds key lending rate, says inflation under control

(Adds detail, background)

By Drazen Jorgic

NAIROBI, Sept 3 (Reuters) - 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)

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