Nairobi — The Central Bank of Kenya (CBK) now projects Kenya's forex market to remain stable despite reducing the lending rate to 12.75 percent.
CBK governor Kamau Thugge affirmed that the Kenyan shilling-US dollar rates will remain stable despite higher interest rate differentials (IRD), noting that other advanced world economies are in the process of reducing their rates.
"We expect the Shilling US rates to remain stable because we project that the interest rate differential will not be there for a long time. The United States is expected to lower their rates in September so the interest rate differential will not impact the Shilling dollar exchange rate," revealed Thugge CBK governor.
He noted that the credit downgrade decision will not result in the weakening of the local unit due to more inflows of the foreign currencies into the nation.
"The bank is busy monitoring the country's inflows and outflows of foreign exchange. We have not seen weakening of the Kenyan Shilling because so far we have seen more foreign exchange coming into the economy than going out and we do not expect much impact of the depreciation of the Shilling because of this downgrade," added Thugge, the CBK governor.
During the Monetary Policy Committee (MPC) meeting held on August 6, 2024, the Committee decided to lower the Central Bank Rate (CBR) to 12.75 percent after the recently released GDP data for the first quarter of 2024 showed continued resilient performance of the Kenyan economy, with real GDP growing by 5.0 percent.
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The country's overall inflation also declined to 4.3 percent in July 2024 from 4.6 percent recorded in June, thereby remaining below the midpoint of the target range.
Food inflation remained stable at 5.6 percent in June and July, with declines in prices of key non-vegetable food items, particularly maize, sugar, and wheat flour, offsetting increases in prices of select vegetables, particularly tomatoes, Irish potatoes, and cabbages.
Fuel inflation further declined to 4.5 percent in July from 6.4 percent in June due to a downward adjustment in pump prices and lower electricity prices, while non-food nonfuel (NFNF) inflation eased to 3.3 percent in July from 3.4 percent in June, reflecting the impact of monetary policy measures.
"Overall inflation is expected to remain below the midpoint of the target range in the near term, supported by a stable exchange rate, lower food prices with expected harvests, and stable fuel prices," noted Thugge CBK governor.
