1 August 2012

Kenya: Inflation Down to 7.7 Percent, Signals Drop in Lending Rates

THE cost of living is easing with official figures showing that inflation fell to 7.74 per cent in July, down from 10.05 per cent in June, a clear indication that interest rates on loans will be coming down further in the near future.

The Kenya Bureau of Statistics said prices of foodstuffs such as Sukuma wiki, milk, potatoes, tomatoes, cabbages, onions, beans, green maize and spinach all fell in the month. This led to a drop in the food and non-alcoholic drinks index by 1.83 per cent between June and July.

Prices of kerosene, cooking gas and electricity also fell in the month leading to a 0.22 per cent drop in the housing, water, electricity, gas and other fuels index. "The average cost of consuming 50 units of electricity for instance fell declined from Sh600 in June to Sh564.50 in July 2012," a statement from the statistics bureau said. The month saw a sharp decline in fuel prices which led to a reduction in both fuel cost adjustment and foreign exchange charges per KWhr.

Additionally, the transport index decreased by 1.35 per cent due to the lower costs of diesel and petrol. The falling inflation rate is a pointer that the Central Bank could be reviewing its key lending rate further in September when the next monetary policy committee meeting is held. In its last sitting on July 5, the committee slashed the rate at which it charges banks as a lender of last resort from 18 per cent to 16.5 per cent on the back of falling inflation and a stabilising exchange rate. Any fall in the CBR in a pointer to commercial banks that they should lower their lending rates. Most commercial banks have started to lower their base lending rates and in effect their final lending charges.

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