Reuters: US Dollar Report: UPDATE 1-Kenya inflation slides to 6.09 pct in August

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UPDATE 1-Kenya inflation slides to 6.09 pct in August Aug 31st 2012, 11:17 Fri Aug 31, 2012 7:17am EDT * Falls faster than expected * Raises pressure for cenbank to cut rates * Real economy struggling due to high lending rates By Duncan Miriri NAIROBI, Aug 31 (Reuters) - Kenya's year-on-year inflation fell for the ninth straight month in August and faster than expected to 6.09 percent, the statistics office said on Friday, possibly opening the way for a rate cut. A Reuters poll of 11 analysts had returned a consensus forecast of 6.45 percent. The steep fall sent inflation down to its lowest level since February last year. The three major east African economies of Uganda, Kenya and Tanzania suffered from soaring inflation and weak currencies in 2011, causing Kenyan and Ugandan policymakers to raise rates sharply to control the rot. The aggressive stance has paid off this year with inflation dropping dramatically and currencies exhibiting stability. But the price of falling inflation and relatively stable currencies has been economic growth, which has flagged in both countries, prompting central banks to embark on easing. "Clearly, with the policy rate still at 16.5 percent, this opens the way for an outsized rate cut next week," said Razia Khan, head of research for Africa at Standard Chartered in London, who expects a cut of 300 basis points. Kenyan policymakers are scheduled to meet on Sept. 5 to set rates, amid encouraging foreign exchange reserves, which rose to a record high of $5.103 billion last week, equivalent to 4.17 months worth of import cover. On a monthly basis, inflation in Kenya fell by 0.31 percent, led lower by prices of food, which declined by 1.09 percent, the statistics office said. Inflation peaked at just under 20 percent last November, prompting the central bank to raise its policy rate to 18 percent. That drove banks lending rate to above 25 percent. The high lending rates caused total non-performing loans in the banking sector to rise by 4 billion shillings ($47.48 million) in the second quarter of this year, Business Daily newspaper reported on Friday, piling more pressure on the central bank to bring interest rates down. "The real economy is feeling pain, the spike in bad debts confirms the stress. It is now high time that the MPC embraces an activist stance on the way down as they did on the way up," said Aly Khan Satchu, an independent trader and analyst. A significant cut in the central bank's lending rate next would still keep real interest rates in positive territory, said Yvonne Mhango, sub-Sahara Africa economist at Renaissance Capital. Link this Share this Digg this Email Reprints

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