NAIROBI, May 7 (Reuters) - Kenya's central bank cut its benchmark lending rate by 100 basis points to 8.5 percent, resuming an easing path after pausing during the elections in March.
Following are analyst and trader reactions:
RAZIA KHAN, HEAD OF RESEARCH FOR AFRICA AT STANDARD CHARTERED.
'Despite risks emanating from the euro area and Kenya's still-substantial current account deficit, the broad outlook is still for relative stability - a view with which we agree. Given that the rate cut was more than some in the market had expected, we may see some very short-lived pressure on the shilling, if this emerges at all.
'However, beyond the knee-jerk market reaction (markets had already started to price in an aggressive move ahead of the meeting), our expectation is that the Kenyan shilling will continue to rally, as Kenyan asset markets benefit from increased offshore inflows.'
'While this 100 basis points easing was very much viewed as a means of supporting credit growth and the wider economic recovery, the key question is what lies ahead. While Kenyan inflation has benefited from a strong base effect, the maintenance of tight liquidity by the Central Bank of Kenya, a firmer shilling as well as improved rainfall, the base effect will provide less support in the second half.'
ALY KHAN SATCHU, INDEPENDENT ANALYST
'This decision was the correct one. The economy needs encouragement and of course, it now behoves the banks to play their role. Inflation has been well behaved and within the central bank's corridor.
'With the world now flooded with a golden flood of practically free money, I think the central bank properly appreciated that there is very little risk on the shilling and I
expect the shilling to continue to trend firmer and towards 80.00. The peaceful election has materially 'derisked' Kenyan assets and reduced the Kenya premia, and I feel the rate cut takes cognisance of these developments.'
IGNATIUS CHICHA, HEAD OF MARKETS CITIBANK
'It's more than the 50 basis points I had anticipated. This shows there was enough room for them to cut the rate and they're pushing on the mantle to commercial banks and the private sector. They are saying the key now is growth and they are not worried that much about inflation.
'The way they see it is that there are some good (dollar)flows coming into the country and their reserve level is strong to defend the currency. If there is any pressure on the shilling we may see them come in to sell dollars and mop up more liquidity using repos.'
(Reporting by Kevin Mwanza; Editing by James Macharia) Keywords: KENYA RATES/
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