Kenya Hikes Key Rate to 10%


Central Bank of Kenya raised its key interest rate by 150bps to 10.0 percent on June 9th, the highest level since December 2012. Although inflation has dropped in May due to seasonal factors, policymakers voiced concern about the growing demand pressure and the persistent volatility in the global foreign exchange markets.

Excerpts from the statement by the Central Bank of Kenya:

The Committee noted that the decline in overall inflation in May 2015 was largely a reflection of significant decreases in the prices of a number of food items following the onset of the long rains.  However, overall inflation remained within the upper bound of the Government target range of 2.5 percent on either side of the medium-term target of 5 percent.

The exchange rate of the Kenya Shilling against the US Dollar had remained under pressure largely reflecting the stronger US Dollar in the global currency market, the widening current account deficit and sustained high demand for foreign exchange in April and May 2015.  However, the exchange rate has stabilised in response to the active monetary policy operations leading to the tight liquidity conditions in the interbank market.

The Committee concluded that the tightening bias stance adopted by the MPC and implemented through the CBK monetary operations had curtailed the rapid depreciation in the exchange rate.  However, the emerging aggregate demand pressures and the persistent volatility in the global foreign exchange markets coupled with the projected recovery in international oil prices have implications on inflationary expectations and the potential of the pass-through of the past exchange rate movements on consumer price inflation.  

Kenya Hikes Key Rate to 10%


Central Bank of Kenya | Joana Ferreira | joana.ferreira@tradingeconomics.com
6/9/2015 2:33:34 PM