JOHANNESBURG: Kenya's central bank will lift interest rates on Wednesday, according to a slim majority of economists in a Reuters poll, as authorities look to support the shilling against a resilient US dollar.
Despite last month's reprieve in inflation, the median forecast from the poll of 11 analysts, taken in the past week, suggested the central bank would lift interest rates by 50 basis points to 12 percent.
However, five said there would be no change and six said rates would go higher, with some saying they may go as high as 13 percent at the August meeting.
"If you do not raise rates now, the portfolio flows that you are waiting for to come in are not going to come in because foreigners are not going to have the added comfort for the currency," Standard Bank economist, Jibran Qureishi, said.
The shilling has lost more than 10 percent since the year started, despite the central bank already hiking its benchmark rate by 300 basis points since January to stem the currency weakness.
Last month's inflation unexpectedly slowed to 6.62 percent from 7.03 percent in the previous month.
The central bank has a medium term inflation target range of between 2.5 percent and 7.5 percent, giving it room to act.
But Qureishi said even though headline inflation has come down because of falling food prices, the secondary round effects of the weaker shilling are still derailing core inflation, which is why the central bank raised rates in the first place.
"You have to kind of engineer an environment that is attractive for portfolio flows in your country as you prepare to gear up for US rate hikes, it could be September after the (U.S) wage data on Friday, who knows," he said.
Friday's jobs data from the world's biggest economy is this week's main event for global markets as investors will get a more guidance on when the United States is likely to hike rates for the first time in almost a decade.
Analysts say a US rate hike has been largely priced in but central banks may still have to lift rates to attract inflows.
"Given hawkish comments from the governor and persistent pressure on the shilling, we cannot rule out more tightening at the August MPC meeting," Standard Chartered's head of Africa research, Razia Khan, said.
Governor Patrick Njoroge last month told his colleagues Kenya needs to rein in its debt and current account deficit to stabilise economic fundamentals, including the exchange rate.
Analysts expect the bank to hike rates to 12.5 percent in the last quarter of this year but then start easing in the second quarter of 2016, the Reuters poll showed.
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