Kenya Leaves Key Rate on Hold at 8.5%

Central Bank of Kenya decided to leave the benchmark interest rate unchanged at 8.5 percent at its January 14th 2015 meeting, saying this would ensure that inflation continues to decline towards the 5 percent. Policymakers also decided to cut the rate banks use as a base to price loans, the Kenya Banks’ Reference Rate, to 8.54 percent from 9.13 percent.
Central Bank of Kenya | Carolina Cunha | 1/14/2015 4:08:14 PM
Excerpts from the statement by the Central Bank of Kenya:

The Committee noted that overall inflation continued to decline gradually in November and December 2014, and remained within the range of the Government medium-term target of 5 percent but still above the target.

Despite the temporary pressures on most international currencies reflecting the global strengthening of the US Dollar, the exchange rate of the Kenya Shilling against the US Dollar has maintained its stable trend while strengthening, on average, against the Euro, Sterling Pound, Japanese Yen, and the regional currencies. The Kenya Shilling continued to be supported by the resilient foreign exchange inflows through diaspora remittances, increased net purchases of equity by foreign investors in the Nairobi Securities Exchange (NSE) while interventions by the Central Bank of Kenya (CBK) through direct sales of foreign exchange to commercial banks have stopped short-term volatility.

The Committee concluded that the monetary policy measures coupled with the lower international oil prices continue to deliver the desired decline in domestic prices and, hence, lower inflation. However, overall inflation has remained in the upper bound of the Government medium-target of 5 percent. The Committee therefore decided to retain the CBR at 8.50 percent to anchor inflation expectations. This will ensure that inflation continues to decline towards the 5 percent target. The MPC will continue to monitor the key macroeconomic aggregates and any emergent risks from the external and domestic economies that may impact on price stability.

Given that the CBR has been retained at 8.50 percent by the MPC and, considering the weighted 2-month moving average of the 91-day Treasury bill rate, the CBK has revised the KBRR consistent with its commitment in July 2014 from 9.13 percent to 8.54 percent. This level of the KBRR will be effective from 14th January, 2015 until its next review in July 2015, if market conditions do not change significantly. 

Kenya Leaves Key Rate on Hold at 8.5%