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Central Bank of Kenya holds main lending rate, eyes on inflation

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Kenya’s central bank left its benchmark lending rate unchanged at 9.0% on Monday but its monetary policy committee said it would keep an eye on recent food and fuel price rises that could fuel inflation.

It was the fifth time in a row the bank has held rates.

Rising food, electricity and fuel prices pushed inflation to an annual 6.58% in April from 4.35% a month earlier, within the government’s preferred band of 2.5-7.5% but the highest reading since September 2017.

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The finance ministry expects the economy to grow 6.1% this year, slightly slower than 6.3% in 2018. The central bank said the economy was operating close to its potential.

In its statement, it said private sector credit had grown by 4.9% in the 12 months to April, compared to 4.3% in March, predicting further growth this year, despite banks’ complaints that a commercial lending cap is creating a credit squeeze.

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They say the cap limiting commercial lending rates to 4 percentage points above the benchmark has forced them to cut back on loans to high-risk groups.

A Kenyan court ruled in March that the cap, imposed in late 2016, was unconstitutional, but judges suspended the decision for 12 months to allow parliament to reassess the policy.

Earlier this month, Finance Minister Henry Rotich said the International Monetary Fund was no longer insisting Kenya remove that cap as a precondition for a new standby credit facility.

The central bank said foreign exchange reserves were at an all-time high of $10.06 billion, or 6.4 months of import cover, helped by a $2.1 billion Eurobond the government sold earlier this month.

It said a shrinking current account deficit was supporting the foreign exchange market and said the deficit was expected to narrow further, to 4.8 percent of GDP in 2019 from 5.0 percent in 2018.

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