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Inflation drops to 7.76 pct, curbs rate rise expectations

31 October 2013, 17:37

Nairobi - Kenya's year-on-year inflation rate fell to 7.76 percent in October, the government said on Thursday, tempering expectations of an interest rate rise next month.

The rate rose to 8.29 percent in September, well outside the government's preferred band of 3.5-7.5 percent, after sales tax changes sent prices of most commodities higher.

That rise in price pressure had led markets to conclude monetary policymakers would raise rates when they convene in November.

But Thursday's data "means there should be no rate hike until maybe in May 2014 when we expect negative base effects on inflation to kick in," said Alex Muiruri, a fixed-income trader at African Alliance Investment Bank.

"It is going to be smooth sailing for the next six months and until then, the governor (of the central bank) will look like a rock star."

The central bank held its policy lending rate at 8.50 percent at its last meeting in September, saying inflation was within an acceptable margin of its medium-term target.

The food and non-alcoholic beverages index, which accounts for just over a third of the consumer price index basket weight, decreased by 0.24 percent in October from the previous month.

The housing, water and energy index decreased by 0.16 percent, the statistics office said, adding that transport costs also fell marginally during the month.

- Reuters


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