Kenya Holds Interest Rate Steady at 9.5%

The Central Bank of Kenya kept its benchmark interest rate steady at 9.5 percent at its May 28th 2018, meeting, surprising markets who expected a 50 bps cut. The move follows a 50 bps slash in the previous meeting, as policymakers noted that the decision of cutting the interest rate in March still needs to be transmitted to the economy.

Excerpts from the MPC Press Release:

Month-on-month overall inflation fell to 3.7 percent in April 2018 from 4.2 percent in March 2018 largely due to lower food prices particularly for Irish potatoes, cabbages, and sugar. The decrease in food prices outweighed the increases in energy prices. Non-food-non-fuel (NFNF) inflation rose slightly, but remained below 5 percent indicating that demand driven inflationary pressures are muted. The rising international oil prices and the impact on domestic fuel prices are expected to continue exerting moderate upward pressure on inflation. Nevertheless, overall inflation is expected to remain within the Government target range mainly due to the expected further decline in food prices following improved weather conditions.

The MPC Private Sector Market Perception Survey conducted in May 2018 showed that inflation was expected to decline in the near term on account of lower food prices. The Survey revealed sustained optimism for stronger growth in 2018 and improved business environment. Respondents attributed this optimism to, among others, a stable macroeconomic environment, favourable weather conditions, continued public spending on infrastructure, focus by the Government on the Big 4 priority areas, and the expected direct flights to the U.S. However, respondents’ optimism was tempered by concerns that recent floods in many parts of the country may negatively affect crop yields and tourism in the short term.

The MPC noted that inflation expectations were well anchored within the Government target range, economic output was below its potential level, and there was some room for accommodative monetary policy. The Committee assessed that the policy action at its March meeting (a reduction of the Central Bank Rate by 50 basis points) was yet to be fully transmitted to the economy, including a determination of any perverse outcomes. The Committee therefore decided to retain the CBR at 9.50 percent. The MPC will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary.

Kenya Holds Interest Rate Steady at 9.5%

Central Bank of Kenya | Stefanie Moya |
5/28/2018 2:07:26 PM