NAIROBI (Reuters) - Kenya's acting finance minister said on Tuesday that inflation in east Africa's biggest economy should continue to fall and urged banks to cut lending rates to help the middle class.
Aggressive monetary tightening since October and slight declines in prices of food and fuel saw the inflation rate fall in January for a second consecutive month, to 18.3 percent after it hit a peak of 19.7 percent in November, fanning widespread discontent.
As the central bank tightened policy, commercial banks raised their lending rates to about 25 percent from 15 percent a few months ago, opening up a new flashpoint, and some parliamentarians now plan a new law capping the rates.
Robinson Githae, Kenya's acting finance minister, said he was keen to address the clamour from legislators and the public for a law to cap interest rates, and would meet bankers to encourage them to cut lending rates.
The banks must cut their lending rates to protect the growing middle class - one of the drivers of growth through higher consumption and investments, he said.
"With the high interest rates, those gains (rise of the middle class) are almost being wiped out. If we continue this way, our middle class will be in danger. We must find ways of protecting our middle class," he said.
"They (banks) have to understand that this is a very emotive issue, very popular issue. The spread between the lending and the deposit rates is exorbitantly high. That is the message."
A reduction of the lending rates by banks to around 19 percent would be a good start in convincing parliamentarians to drop their attempt to cap rates, he said.
"I'm telling the banks, give me something to take to the members of parliament. Show them that you can police yourselves. Show them that you can reduce the rates on your own without government intervention," said Githae.
READY TO ACT
Githae, speaking at a forum on inflation, said the outlook for inflation was favourable and he hoped electricity prices, a major contributor to rising consumer prices, would come down soon.
"The outlook for inflation is now favourable with easing domestic supply conditions and stable international oil prices. We however remain vigilant and are ready to take further measures to ensure continued stability," Githae said.
"The cost of electricity is extremely high compared with South Africa and Egypt. That rate must come down even if inflation goes down," Githae told Reuters after the forum.
Consumer prices rose sharply in Kenya throughout 2011, in tandem with other countries in east Africa, mainly due to tight food supply.
Policymakers will be keen to see the inflation rate fall further ahead of general elections expected by late this year or March next year at the latest.
The central bank maintained its benchmark lending rate at 18 percent for a second month on February 1, to cement gains made in stabilising the shilling and taming prices.
The shilling hit a record low of 107 hit on October 11, but has since recovered, after the central bank raised its key lending rate to 18 percent in December from 7 percent in September.
Githae took over at the Treasury after Uhuru Kenyatta quit the post when he was indicted by the International Criminal Court for directing violence in the fighting that almost pushed Kenya to the brink following a disputed 2007 election. Kenyatta is appealing the charges.
yahoo.com
Aggressive monetary tightening since October and slight declines in prices of food and fuel saw the inflation rate fall in January for a second consecutive month, to 18.3 percent after it hit a peak of 19.7 percent in November, fanning widespread discontent.
As the central bank tightened policy, commercial banks raised their lending rates to about 25 percent from 15 percent a few months ago, opening up a new flashpoint, and some parliamentarians now plan a new law capping the rates.
Robinson Githae, Kenya's acting finance minister, said he was keen to address the clamour from legislators and the public for a law to cap interest rates, and would meet bankers to encourage them to cut lending rates.
The banks must cut their lending rates to protect the growing middle class - one of the drivers of growth through higher consumption and investments, he said.
"With the high interest rates, those gains (rise of the middle class) are almost being wiped out. If we continue this way, our middle class will be in danger. We must find ways of protecting our middle class," he said.
"They (banks) have to understand that this is a very emotive issue, very popular issue. The spread between the lending and the deposit rates is exorbitantly high. That is the message."
A reduction of the lending rates by banks to around 19 percent would be a good start in convincing parliamentarians to drop their attempt to cap rates, he said.
"I'm telling the banks, give me something to take to the members of parliament. Show them that you can police yourselves. Show them that you can reduce the rates on your own without government intervention," said Githae.
READY TO ACT
Githae, speaking at a forum on inflation, said the outlook for inflation was favourable and he hoped electricity prices, a major contributor to rising consumer prices, would come down soon.
"The outlook for inflation is now favourable with easing domestic supply conditions and stable international oil prices. We however remain vigilant and are ready to take further measures to ensure continued stability," Githae said.
"The cost of electricity is extremely high compared with South Africa and Egypt. That rate must come down even if inflation goes down," Githae told Reuters after the forum.
Consumer prices rose sharply in Kenya throughout 2011, in tandem with other countries in east Africa, mainly due to tight food supply.
Policymakers will be keen to see the inflation rate fall further ahead of general elections expected by late this year or March next year at the latest.
The central bank maintained its benchmark lending rate at 18 percent for a second month on February 1, to cement gains made in stabilising the shilling and taming prices.
The shilling hit a record low of 107 hit on October 11, but has since recovered, after the central bank raised its key lending rate to 18 percent in December from 7 percent in September.
Githae took over at the Treasury after Uhuru Kenyatta quit the post when he was indicted by the International Criminal Court for directing violence in the fighting that almost pushed Kenya to the brink following a disputed 2007 election. Kenyatta is appealing the charges.
yahoo.com
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