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Kenya’s central bank unexpectedly cut its benchmark interest rate for a second consecutive meeting, saying price expectations are anchored and the economy is operating below its potential.

The monetary policy committee reduced the rate to 8.25% from 8.5%, Governor Patrick Njoroge said in an emailed statement on Monday. All three economists surveyed by Bloomberg said it would stay unchanged.

Key Insights:

  • The MPC cut the key rate in November for the first time in 16 months after the removal of a cap on borrowing costs, which Njoroge said made it difficult for policy decisions to flow to help boost credit and economic growth. While the effect of the previous reduction continues to be transmitted to the economy, there was room for further easing, Njoroge said.
  • While inflation quickened to 5.8% in December, it’s been inside the target band of 2.5% to 7.5% for more than two years, and expectations remain well anchored, the MPC said. The rate should remain inside the target band in the near term due to good rains and lower electricity prices, the panel said.

--With assistance from Zoe Schneeweiss.

To contact the reporter on this story: David Herbling in Nairobi at dherbling@bloomberg.net

To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, Rene Vollgraaff, Paul Richardson

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