Kenya's central bank retains benchmark rate at 8.5%

Special Report:Global Financial Crisis

NAIROBI, Jan. 31 (Xinhua) -- Kenya's central bank has maintained its benchmark interest rate unchanged after a rate cut last month had the "desired effect" of improving liquidity.

A statement from the Central Bank of Kenya (CBK) received here on Saturday said the rate will remain at 8.5 percent.

"The MPC therefore agreed to retain the CBR (central bank rate) at its current level of 8.5 percent to allow for the impact of previous decisions to be fully absorbed by the economy," the bank said in a statement after a Monetary Policy Committee (MPC) meeting.

The statement said the Committee will provide for better mechanisms to overcome intermediation inefficiencies in the financial sector which have constrained the full benefits from being realized," it said.

The country's apex bank said the decisions initiated had the desired effect of increasing market liquidity and causing interest rates to decline.

"The full impact has yet to be absorbed by the economy. Nevertheless, they provided the appropriate signals to stimulate and support the private sector," it said.

The bank last reduced the rate by half a percentage point on Dec. 1. The CBK Governor Njuguna Ndungi said last week that inflation in east Africa's biggest economy may drop by half when the statistics office overhauls the consumer price index later this year, and as oil prices decline.

The inflation rate dropped to 27.7 percent in December from 29.4 percent the previous month, according to the national bureau of statistics.

"Inflationary pressure is easing," Ndung'u said. At the same time, the last rate cut "provided the appropriate signals to stimulate and support the private sector."