Kenya central bank holds key lending rate at 8.5 pct

NAIROBI (Reuters) - Kenya's central bank held its key lending rate at 8.50 percent on Tuesday, in line with market expectation, saying inflation was within an acceptable margin of its medium target for inflation. A Reuters poll ahead of the decision had forecast Kenyan policymakers would leave the bank's benchmark rate unchanged until at least the end of the year to help counter inflationary pressures and a bearish currency. The Monetary Policy Committee also noted festering risks to the economic outlook of east Africa's biggest economy. It said political instability in the Middle East and North Africa had led to higher oil prices and could hurt Kenya's tea exports, an important source of hard currency. "These developments coupled with the high current account deficit remain a threat to macroeconomic stability," the MPC said in a statement. The government holds a medium term inflation target of 5 percent, plus or minus 2.5 percent. Inflation climbed to 6.7 percent in August from 6 percent in July. The MPC said that new Value Added Tax measures that came into force this week would contribute short-term inflationary pressures but that these would be mild.