Kenya Leaves Rate on Hold at 8.5%

At is January 14th meeting, Central Bank of Kenya decided to leave the benchmark interest rate on hold at 8.5 percent, as the current monetary policy stance is considered to deliver the desired objective of price stability. The Committee also said there was room for commercial banks to reduce the lending rates.

Excerpt from the statement by the Central Bank of Kenya:

The 12-months cumulative current account deficit (as a percentage of GDP) improved from 10.45 percent in December 2012 to an estimated level of about 8.5 percent by November 2013.

The Government domestic borrowing programme for the Fiscal Year 2013/14 remains consistent with the monetary policy objectives. The coordination between monetary policy and the supportive growth-oriented fiscal policy continues to generate inflation and exchange rate stability, increased capital inflows and an improved environment for financial intermediation.

The movements in the short-term interest rates were generally aligned to the Central Bank Rate (CBR) while Open Market Operations were sustained to support liquidity management. Commercial banks' lending rates declined from an average of 19.73 percent in 2012 to about 16.80 percent 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 latest data from the Kenya National Bureau of Statistics (KNBS) shows that the financial intermediation sector continued supporting growth. In addition, the strong performance of the manufacturing and building and construction sectors during the third quarter of 2013 was an indication of continued recovery of the economy.

Confidence in the economy remains strong. Specifically, improved activity at the Nairobi Securities Exchange (NSE) was reflected in the buoyancy of the NSE-20 index which averaged 5006.9 from October to December 2013. Furthermore, the NSE was listed among the most active stock markets in Africa during the period. Diaspora remittances remained resilient and averaged USD110.6 million per month from July to November 2013. In addition, the MPC Market Perceptions Survey conducted in December 2013 showed that the private sector expects inflation and the exchange rate to remain stable, and a strong growth in 2014. The recent visit and statements by the Managing Director of the IMF endorsing the country's track record of prudent macroeconomic policy and management have provided a positive signal to potential investors. This endorsement will be enhanced by any future partnership.

Kenya Leaves Rate on Hold at 8.5%

Central Bank of Kenya | Joana Taborda |
1/14/2014 2:44:20 PM