NAIROBI: Kenya's year-on-year inflation rate is expected to fall for the fourth consecutive month in March, a Reuters poll showed, suggesting the central bank might cut its key interest rate next week after keeping it on hold for three months.
The central bank will be looking closely at the March inflation number, particularly at transport and food costs, to determine whether it is now the time to start a cycle of easing after aggressive rounds of tightening to prop up the shilling.
The consensus forecast in a Reuters survey of nine analysts was for inflation to slow to 14.80 percent in east Africa's largest economy from 16.69 percent in February, the lowest since August 2011.
However, higher energy prices and possible spikes in food costs could still pose a risk and may yet deter the central bank from starting to cut the rate, no w at 18 percent, when it meets in the first week of April.
Kenya's central bank kept its key interest rate on hold for the third month in a row in March after worrying signs from its neighbour Uganda of the risks of easing policy before inflation slows markedly.
A stronger shilling and aggressive monetary policy tightening by the central bank slowed inflation after it had been rising for 13 straight months to a peak of 19.72 percent in November.
Kenya's energy regulator warned it may raise energy prices in the coming months after lifting the cost of petrol and kerosene for the first time since November.
Eight out of nine analysts said they expected the rate of inflation to slow in March.
"We expect the disinflation trend to have remained in place in March in spite of the increase in fuel prices during the month, Mark Bohlund, senior economist at IHS Global Insight, said.
"We do not rule out the possibility of a re-acceleration in food prices as seen in Uganda in February, which could prompt the central bank to remain on hold in April," Bohlund said.
Food inflation rate dropped to 22.05 percent in February from 24.58 percent a month earlier.
Earlier this month the central bank said that although inflation had started to decline, risks to the outlook remained and the real economy needs to slow further.
The Monetary Policy Committee said the country's balance of payments outlook remained a matter of concern, not least because of the rise in global oil prices was a threat to the stability of the exchange rate and continued falls in inflation.
"Headline inflation continues to benefit from favourable base effects largely on food inflation and to a lesser extent on energy inflation," Alexander Muiruri, economist at African Alliance, said.
"Despite the declining inflationary trends we expect the monetary policy to remain tight in response the targeted growth levels for private sector credit and the high core inflation levels (still above 12 percent)," he said.
Only one forecast from Bank of Africa Kenya expected inflation to accelerate slightly to 17.5 percent in March.
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