Central Bank of Kenya to hike rate 25 bps to 9.00%

The Central Bank of Kenya (CBK) will raise its key policy interest rate by 25 basis points to 9.00% later on Wednesday in its latest move to brake still-rising inflation, a Reuters poll predicted.

A slight majority, six of 11 analysts surveyed March 21-28, predicted a 25-basis-point lift. Three said the CBK would hold steady, while one forecast a 50-basis-point increase and another expected a 125-basis point-jump to 10.00%.

At its last meeting in January, the CBK held its benchmark lending rate steady at 8.75%, saying its previous hike in November was still working its way through the economy. It has raised rates a total of 175 basis points since last May.

"The central bank will have to tighten policy further if it is to tame rampant inflation, while the US (Federal Reserve)'s recent policy hike will also weigh on Kenyan policymakers' minds," said Shani Smit-Lengton at Oxford Economics.

"While there may be room for a larger 50 bps increase, we believe that the monetary authorities will opt for a more cautious approach."

Central banks in emerging markets have conducted aggressive monetary policy tightening in the past 18 months to halt rising inflation against a backdrop of a strong US dollar compared to their local currencies, notably that of continental peer Ghana.

Kenya's policy has been somewhat less hawkish in the continent despite inflation remaining stubbornly sticky. Inflation rose to an annual 9.2% in February from 9.0% a month earlier, largely driven by food and transport prices.

During a second week of protests against the government and high food prices Kenyan police fired teargas and water cannons at stone-throwing supporters of opposition leader Raila Odinga on Monday.

"The CBK needs to strike a delicate balance between managing the rise in CPI inflation – a major reason for ongoing protests – and avoiding a further slowdown in economic activity," said Smit-Lengton.

Some other major central banks in Africa have already announced their benchmark rate decisions this month.

The Bank of Ghana on Monday unexpected raised its main interest rate by 150 basis points to 29.5%, while Nigeria's central bank raised its benchmark lending rate by 50 basis points to 18.00% last week, as forecast in a Reuters poll.

South Africa's Reserve Bank will raise interest rates by 25 basis points on Thursday for the last time in this cycle in anticipation of slower inflation and a weak economy due to power disruptions, a separate Reuters poll indicated.