NAIROBI: Kenya's Monetary Policy Committee cut the central bank rate by 150 basis points to 16.5 percent, a bigger cut than expected, because implementation of its tightening stance was working, the committee said on Thursday.
Following are analyst and trader reactions:
RAZIA KHAN, HEAD OF AFRICA RESEARCH, STANDARD CHARTERED
"The Central Bank of Kenya surprises markets with a larger than expected 150 basis points rate cut, but also announces that it will be reverting to a two-monthly MPC meeting schedule. We expect market reaction to the rate cut to be overwhelmingly positive.
"With CPI having effectively fallen to 10 percent year-on-year (it wasn't just the base effect. Month-on-month inflation in June was negative) - there was plenty of room to cut the CBR, which was previously at a peak of 18 percent.
"It would be wrong to see this rate move as KES-negative in any way. Real interest rates remain substantial in Kenya, and may increase ahead of the September MPC meeting, as inflation continues to decelerate.
"With the CBK still mopping up excess liquidity through the TAD with flexible tenors, it is likely to remain well in control of the situation, stepping in with additional intervention when required. The holding of the next MPC in September now opens the way for another outsize rate cut to follow, with the authorities granted additional time to gauge the impact on both the FX market and the wider economy. Our view had long been that we would see at least 400 bps of easing this calendar year - and with this first rate cut, we look to be well on our way towards achieving that."
FRED MWENI, CHAIRMAN OF THE KENYA BOND TRADERS' ASSOCIATION
"The cut is excellent news. We were expecting that to happen because inflation has now consecutively come down. I think the market is going to accept the cut in a good way and as a good move.
"In the last 6 months banks have been very liquid on one hand but that liquidity has never benefited anyone because they are not lending on the corporate side. So how do you motivate them to start lending and therefore boost the GDP (gross domestic product)? Lower down the rates."
ALY KHAN SATCHU, INDEPENDENT ANALYST
"I commend the MPC for grasping the nettle even after the IMF (International Monetary Fund) had tried to stay their hand via Dominic Fannizzi Esquire.
"The inflation rate has had its back broken (month on month inflation was running at negative -0.8 percent and the economy grew at its slowest pace in Q1, 2012 since Q1, 2008 (when the economy was at a stand still)."
"So I believe we sit on the cusp of an easing cycle which will total between 600 basis points through year-end, and the MPC whilst re-establishing their inflation busting credentials, are also making sure the slow down does not run away from them."
"I was looking for 200 basis points but I am more than satisfied with 150."
STUART CULVERHOUSE, ECONOMIST, EXOTIX
"It's a surprise, I think it's a big move. We have thought all year the CBK should leave cutting rates until the third quarter but I thought they might wait a bit longer than they have and be more gradual.
"The other significant thing is moving the meetings to bi-monthly. This could prove premature. While inflation has fallen nicely towards the interim target, currency pressures remain."
RAPHAEL OWINO, ASSISTANT GENERAL MANAGER TREASURY, COMMERCIAL BANKS OF AFRICA
"The cut is beyond market expectation. The market had expected 100 basis points but they did more than that. They are confident that their monetary policy is working and that warrants a cut in the borrowing cost to at least support economic growth which is showing sings of slowing."
"Going forward it will depend on what happens with inflation. If inflation keeps edging down they may cut further. They have considered that this will have considerable pressure on the shilling. The shilling has to depreciate a bit. We may see a 50 cent shave off when we open tomReuters
MARK BOHLUND, SENIOR ECONOMIST FOR SUB-SAHARA AFRICA, IHS GLOBAL INSIGHT
"The 150 basis points cut was slightly larger than consensus expectations for a 100 basis points cut and could thus move the Kenyan shilling somewhat on expectations that the CBK will cut rates at sharper increments than expected."
"In addition, reverting back to bi-monthly meetings could prompt fears that the central bank is 'taking the eye off the ball' amid what are still very uncertain circumstances both domestically and globally. As the decision is largely in line with expectations it should not prompt a sharp reaction from the market."
"However, any financial outflows risk weighing heavily on the shilling in the second half of the year given that the current account remains in double digits (as a percentage of GDP)."
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