Hiked Fuel Taxes Prompts Kenya Central Bank to Hold Benchmark Lending Rate at 10.5%

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Kenya’s central bank held its benchmark lending rate at 10.5 percent on Monday due to recent increases in fuel taxes that would temporarily put upward pressure on inflation, the bank’s monetary policy committee said.

Eight out of 10 analysts polled by Reuters last week expected the bank to hold rates after a 100 basis points cut at the last meeting in May.

May’s cut, which was designed to push banks to lower commercial lending rates that are still elevated, did not have the desired effect as rates remained near 20 percent.

On Monday, policymakers cut the bank’s reference rate, on which bankers are supposed to base their lending rates, to 8.90 percent from 9.87 percent. The reference rate usually stays in place for six months.

Kenya’s energy regulator raised retail prices of petrol in the capital Nairobi by 8 percent on July 14, mainly due to an increase in the road maintenance levy.

“Although demand pressures on inflation remain moderate, the effects of the recent increase in fuel tax were expected to exert temporary upward pressure on consumer prices,” the MPC said in a statement.

Source: Reuters