15 January 2014

Kenya: MPC Retains Rate At 8.5 Percent

The Central Bank monetary policy committee yesterday retained its policy rate at 8.5 per cent, an indication that Kenyans will continue assessing loans at existing low rates for the next two months.

The committee said the current monetary policy stance had achieved inflationary expectations and continues to deliver the desired objective of price stability.

For instance, overall month-on-month inflation declined from 7.36 per cent in November to 7.15 per cent in December, an indication that the growth in loans had not fueled inflation.

The exchange rate has also stabilised reducing the risk of imported inflation, the committee noted.

"The committee therefore decided to retain the CBR at its current level of 8.50 per cent to encourage a full impact of this monetary policy path to be felt throughout the economy," a statement issued after its meeting said.

It said commercial banks' lending rates declined from an average of 19.73 per cent in 2012 to about 16.80 per cent in 2013 which was consistent with the monetary policy stance.

"However, there remains space for further reductions in lending rates by commercial banks while raising deposit rates to incentivise mobilisation of investible funds," the committee noted.

The committee gave a positive outlook on the exchange rate based on the projected robust growth of Sub-Saharan Africa economies this year with expectations for increased foreign exchange inflows from regional trade.

"In addition, the forthcoming sovereign bond issue will further bolster the country's foreign exchange reserves and support exchange rate stability," the statement said.

It however said it will continue to monitor key macroeconomic factors and any emergent risks that may impact on price stability.

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