Central bank keeps base rate on hold

Kenya’s central bank held its benchmark lending rate at 11.50 percent for the second time in a row on Tuesday, saying inflation had fallen towards its medium-term target.

Future monetary policy decisions will be conditional on the improvements in the inflation outlook.

The condensed minutes of the meeting are scheduled to be published at 2 p.m. on October 7.

In EMEA, many rate decisions would be released next week.

“The horizon over which the inflation target is expected to be achieved has been extended by around two quarters relative to the previous projection, due to the persistent low-cost environment and slightly lower underlying inflation looking ahead”, the central bank said.

Inflation is expected to average 4.8 percent this year, 5.9 percent next year and 5.8 percent in 2017.

The National Bank of Hungary on Tuesday set the three-month deposit rate at 1.35 percent, marking the first time policymakers used a new benchmark announced in June. “Lira holders will be increasingly demanding a higher risk premium on the rising inflationary pressures and mounting political risks before the snap election”.

Emerging markets like Turkey partially stabilized after Chairwoman Janet Yellen said last week that the Fed had chose to delay its first interest-rate increase in nearly a decade amid worries about global economic growth, led by a slowdown in China.

In addition to discussing economic and financial developments, the bank said its policy committee had continued to discuss the implementation of its “road map during the normalization of global monetary policies”, a strategy that includes measures for how the central bank will adjust it liquidity, foreign exchange and interest rate policy – including changes to the interest rate corridor structure – when the U.S. Federal Reserve starts to tighten its policy stance.

The move is forecast to boost local banks’ demand for longer-maturity local-currency government bonds so that they can meet their reserve requirements.

Meanwhile, Hungary’s debt management center is reducing its offer of three-month and 12-month government securities, which could also increase potential demand for bonds with a longer-maturity.

“We still expected to be below 6 percent and that should give the MPC some room to leave interest rates unchanged”.

Falling commercial rates “weaken the Hungarian forint”, Erste added.