Excerpts from the statement by the Central Bank of Kenya:
Consumer prices rose by 8.0 percent year-on-year in December 2015, following a 7.3 percent growth in November, mainly driven by increase in food prices. Inflation stayed above the 7.5 percent upper bound of the Government’s target range. Also, the non-food-non-fuel (NFNF) inflation increased to 5.6 percent in December from 4.8 percent in November as a result of the new Excise Taxes on alcoholic beverages and tobacco products.
The foreign exchange market has remained stable since November 2015, despite the rise in U.S. interest rates, impact of the slowdown in China, and volatility in other global financial markets. Stability in the foreign exchange market continues to be supported by a narrowing current account deficit largely due to a lower import bill for petroleum products, recovery in tourism, tea and horticulture exports, and diaspora remittances. CBK’s foreign exchange reserves which currently stand at USD 7,023.7 million (equivalent to 4.5 months of import cover), together with the Precautionary Arrangements with IMF, continue to provide an adequate buffer against short-term shocks.
The Government’s borrowing plan in the first half of the Fiscal Year 2015/16 ensured that the build-up in domestic debt was consistent with the thresholds set in the Medium-Term Debt Management Strategy. The Government continues to review its borrowing plan in line with market conditions and prudent budget management.
The economy remained strong in the third quarter of 2015, posting a growth rate of 5.8 percent compared to 5.2 percent in a similar period of 2014. Significantly, the CBK Market Perception Survey of January 2016, showed increased optimism for improved business conditions and stronger growth in 2016, largely due to strengthened macroeconomic environment, continued public investment in infrastructure, lower oil prices, improving tourism performance, and a higher country profile.
In view of the developments noted above, the Committee concluded that the current inflation pressures are temporary, and that the monetary policy measures currently in place are containing any demand pressures in the economy. The MPC therefore decided to retain the CBR at 11.50 percent in order to continue to anchor inflation expectations. The CBK will continue to use the instruments at its disposal to maintain overall price stability while ensuring stability in the financial sector.