In the month of August 2012 the fall was a result of declining prices of potatoes,milk and cabbages as per a survey conducted by the Kenya National Bureau of Statistics.The increase was meant to stabilize the shilling and tame inflation.
Food and non-alcoholic beverages decreased by 1.09%.The drop in the inflation rate will set the stage for a deep cut in interest rates.Many Kenyans paid more in water, elecricity, housing, gas as it was indicated by the index which increased by 0.8%.
The drop in August was 7.74% from July which was larger than estimated by economic researchers at Standard Chartered Bank. It predicts a fall to 6.7% and the CBK’s target of 9%. Last month the inflation rate dropped to 6.07% intensifying the call to cut the Central Bank Rate (CBR) to boost economic growth.
The policy rate is at 16.5% and predicts a cut to 13.5% from 16.5%. The Monetary Policy Committee (MPC) should be convinced in the inflation figures to cut the standard lending rate at its bi-monthly meeting.
The MPC reduced the base rate to 16.5% from 18% .It is the first drop since the rates increased.
The SBG Securities report shows that the Kenyan economist predicts a steady fall in interest rates in the next 12 months which will benefit equity markets.