JOHANNESBURG – Faster inflation in Kenya will not prompt the Central Bank of Kenya to hike interest rates on Monday, according to a Reuters poll of economists who note that most of the price pressure is being stoked by food prices amid an acute drought in East Africa.

A Reuters poll yesterday showed 10 analysts unanimously predicted the Central Bank of Kenya (CBK) will hold rates at 10.0 per cent on March 27. The Bank held rates at the last three meetings after cutting by 150 basis points last year.

Razia Khan, the head of Africa research at Standard Chartered, said with inflation spiking, the real question is whether the CBK will tighten rates.

"We think not, with only food prices pressuring the headline, and other components of inflation better behaved,” Khan said, adding that recently, core inflation has declined.

Kenya declared the drought a national disaster last month, calling for aid to counter what is posing a major risk to people, livestock and wildlife.

Gaimane Nonyane, a senior economist at Ecobank, said the CBK will adopt a wait-and-see approach given broad currency stability.

The upcoming elections will also reduce pressure for a rate hike, but if inflation continues to rise steadily then they are likely to raise rates.

Policy misstep

President Uhuru Kenyatta signed into law a bill last August that would cap commercial bank lending rates at 4.0 percentage points above the central bank’s benchmark lending rate.

Then Kenya was still in rate-cutting mode. But the central bank started its current pause in November, in part because the bill had triggered a slowdown in private sector credit and hurt profitability in the banking sector.

"The CBK likely recognises that the loan rate cap has weakened private sector credit growth. So, lower interest rates are not necessarily going to help. The issue is that banks cannot price adequately for risk, so will not lend,” added Khan.

Kenyatta pledged to ensure firms can get credit again.

Credit growth - with the exception of South Africa - is still largely untapped in most of Africa’s major economies due to relatively high rates and populations that mostly don’t have a bank account.

However, Kenya’s debut government bond sale via mobile phones, a world first aimed at expanding the pool of investors in a country that needs money for infrastructure projects highlights the potential for growth.

Agencies.