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By George Obulutsa
NAIROBI (Reuters) -Kenya's central bank slashed its benchmark lending rate to 12.00% from 12.75% on Tuesday, in a move aimed at stimulating credit to the private sector, the bank's monetary policy committee (MPC) said in a statement.
The cut follows a 25 basis-point reduction in August, the first in approximately four years. The bank also trimmed its economic growth forecast for 2024, citing a slowdown in the second quarter.
"The MPC ... noted the sharp deceleration in credit to the private sector, and the slowdown in growth in the second quarter of 2024, and concluded that there was scope for a further easing of the monetary policy," the bank said in a statement.
Last week, Finance Minister John Mbadi said the central bank should start lowering its lending rate due to falling inflation in recent months.
Inflation fell to 3.6% year-on-year in September from 4.4% a month earlier. It stood at 4.3% in July, well within the government's preferred band of 2.5%-7.5%.
Prior to the rate decision, Kenya Bankers' Association said in a research note on Oct. 3 that there was room for the bank "to effect a decisive policy rate cut" to support stronger economic growth by pushing for a recovery in growth of private sector credit.
The bank cut its growth forecast for 2024 to 5.1% from 5.4% following slower growth in the second quarter, which came in at 4.6% year-on-year from 5.6% in the same quarter a year earlier. But it expects the economy to grow 5.5% in 2025.
"The resilience of key service sectors, robust performance in agriculture and improved exports are expected to continue supporting growth," it said.
Kenya's shilling currency is up more than 21% against the dollar this year, after a rally that started in February when the government sold a new $1.5 billion Eurobond to buy back most of a $2 billion bond whose maturity in June had shaken investors.
The central bank said it had adequate foreign exchange reserves, at $8.25 billion, to buffer against any short-term shocks in the foreign exchange market.
(Reporting by George ObulutsaEditing by Bate Felix and Mark Potter)
