Central Bank of Kenya to hold rates at 10pc on Nov 28

JOHANNESBURG: Kenya is expected to keep interest rates stable on Nov. 28 ahead of an expected rate rise in the United States while cautiously dealing with the impact of new banking regulations, a Reuters poll found on Friday.

The shock of trade-sceptic Donald Trump ascending to the top office of the world's biggest economy has wrong-footed African countries, many of which have enjoyed beneficial trade agreements.

A stronger dollar and higher Treasury yields in the wake of Trump's victory are also pressuring emerging economies.

In a poll taken since the start of the week, 12 analysts expect Kenya's central bank to hold rates at 10 percent while two said the Bank will cut rates by 50 basis points and one opted for easing of 100 basis points. The Bank has cut rates by 150 basis points this year. Though it seems the Central Bank of Kenya has some wiggle room to cut rates, it will probably wait until next year to see a clearer picture of what Trump's policies mean for Africa.

Kenya is a big player in east Africa's intra-regional trade, however the United States is a major export destination outside of the continent.

Kenya has benefited from the African Growth and Opportunity Act (AGOA), which gives sub-Saharan African nations duty-free access to US markets for certain goods.

But the election of Trump, who campaigned on protectionist trade policy, has many governments in Africa worried that his administration will curtail this preferential treatment.

"The Kenyan central bank is evidently in a loosening cycle, but the balance of both external and domestic risks suggests that a wait-and-see approach is warranted," said Jacques Nel, senior economist at NKC African economics.

Rafiq Raji, at Macroafricaintel in Lagos, said an imminent US rate rise, the strengthening dollar and the widely-seen downside for emerging market assets from likely Trump policies were causes for caution.

GAME-CHANGING REGULATION Commercial banks in Kenya must start applying a new cap that will limit their lending rates to 4 percentage points above the central bank's benchmark interest rate from September, a move that has put banks under pressure.

NKC's Nel added that the domestic banking sector is still digesting the imposition of rate caps, which further complicates monetary policy as rate decisions will have direct effects on commercial banks' operations.

Still, Kenya is expected to cut rates 50 basis points in the second quarter and by the same margin in the following quarter to end the year with rates at 9 percent.

Economic growth in east Africa's biggest economy is expected to grow 5.8 percent this year, virtually unchanged from a forecast in a Reuters poll taken two months ago. Growth is expected at 6 percent next year, in line with comments from a senior Treasury official this week who initially estimated 6.5 percent but trimmed that back mainly because of slowing private-sector credit growth.

Inflation, at 6.47 percent in October is expected to average 6.3 percent this year and 6.0 percent in 2017, well within the Bank's comfort level of between of 2.5 and 7.5 percent.

"Inflation is expected to be lower in 2017 so the central Bank might respond with lower interest rates next year," said Ecobank's head of economic research Gaimin Nonyane.