1 September 2012

Kenya: Hopes of Low Rates As Inflation Eases

THE cost of living continues to ease with inflation rate dropping further to 6.09 per cent in August from 7.74 per cent in July. The drop signals strong likelihood of a cut in the Central Bank's key lending rate as the Monetary Policy Committee prepares to meet on Wednesday.

In its last sitting on July 5, the committee cut the rate at which it charges banks as a lender of last resort from 18 per cent to 16.5 per cent due to reduction in inflation and a stabilising exchange rate. Any fall in the CBR in a pointer to commercial banks that they should lower their lending rates.

Standard Chartered's head of regional research in Africa through her twitter page commented: "that is the third consecutive month on month decline in inflation. Outlook is positive, but with current account deficit substantial, measured easing is needed."

"Though notable price rises were observed in respect of some other food products in the same period, the net effect was a reduction in the food index," said the Kenya National Bureau of Statistics in a statement yesterday.

Food and non alcoholic drinks index decreased by 1.09 per cent due to a drop in a number of food prices namely tomatoes, milk, potatoes, maize flour, cabbages, carrots, spinach and onions. The prices of tomatoes, milk, maize flour and spinach reduced by an average of 7.4, 3.3, 2.4 and 5.2 per cent respectively.

Higher energy costs pushed up the housing, water, electricity, gas and other fuels index by 0.8 per cent. The statistics report indicates that the price of some cooking fuels rose despite decreasing average prices of kerose and cooking gas over the period.

'The upsurge in electricity prices was brought about by increases in the fuel cost adjustment and foreign exchange charges," said KNBS. Transport index dropped to 0.82 per cent because of reduction in matatu, bus and taxi fares as a reaction to drop in diesel and petrol prices during the month.

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