September 23, 2019 / 2:12 PM / 24 days ago

UPDATE 1-Kenya central bank holds rates for the seventh time in a row

(Adds details, background)

NAIROBI, Sept 23 (Reuters) - Kenya’s central bank held its benchmark lending rate at 9.0% on Monday, saying inflation was well anchored within the government’s preferred range and that the economy was operating close to its potential.

Policymakers have held the benchmark rate for seven straight meetings but they said that stance could change soon.

“The Committee also noted the prospective tightening of fiscal policy which would provide scope for accommodative monetary policy in the near term,” it said in a statement.

The finance ministry has started cutting non-essential spending to reduce the fiscal deficit from close to 6% of GDP although analysts have expressed worry over the pace and depth of those cuts.

Year-on-year inflation dropped to 5.0% in August from 6.27% a month earlier, helped by falling food prices, data from the statistics office showed.

“Overall inflation is expected to remain within the target range in the near term mainly due to expectations of lower food prices with the expected favourable weather conditions, and lower electricity prices reflecting the reduced usage of expensive power sources,” the central bank said.

Despite the benign inflation, the economy has been hit by a slowdown in private sector credit growth, mainly due to a cap on commercial interest rates, which has locked out borrowers who are deemed by banks to be too risky.

Private sector credit grew by 6.3% in the 12 months to August, compared to 6.1% in July, the central bank said, well below the ideal rate of 12-15%.

Lawmakers are expected to block the finance ministry’s request to scrap a cap on commercial lending rates imposed by lawmakers in 2016.

In its budget proposals to parliament in June, the finance ministry sought to repeal the rate cap, arguing that it has constricted private-sector credit to small and medium-sized businesses. (Reporting by George Obulutsa and Duncan Miriri; Editing by Catherine Evans)

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