Looming elections cast shadow on interest rates

By Fredrick Obura

A possible rise in spending due to an expanded government structure could put pressure on interest rates.

Fund managers at PineBridge Investments said the March 4 polls could also put pressure on the Shilling, disrupting the prevailing macroeconomic stability.

These projections are contained in a report by PineBridge Investments for the quarter ending  December 31.

In the last few months, the Monetary Policy Committee (MPC) — a key policy organ of the Central Bank of Kenya (CBK) — has been consistently lowered the Central Bank Rate (CBR). This monetary policy action has been informed by a decline in the rate of inflation from a high of 18 per cent last year, to single digits levels.

However, the March polls could see MPC put brakes on further cuts on the CBR until the elections are concluded. In its meeting on January 10, the CBK lowered the CBR to 9.50 per cent. This was encouraged by a drop in monthly inflation at 3.20 from 3.25 per cent in December last year.

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The MPC noted that the main risks to macroeconomic stability were the uncertainty over the full resolution of the Eurozone problems, and balance of payments pressures attributed to the high current account deficit.