Excerpts from the statement by the Central Bank of Kenya:
The Committee noted elevated risks to the inflation outlook mainly attributed to pressures on the exchange rate over the last few months. The Market Perceptions Survey of June 2015 showed that private sector firms expected inflation to rise mainly on account of pass-through effects of past exchange rate movements, and increases in fuel prices. However, the Survey showed optimism for an improved business environment by private sector firms in the remainder of 2015 related to continued investment in infrastructure, credit growth to key sectors, and improved confidence in the economy.
In view of these developments, the emerging risks, and the consequent need to anchor inflationary expectations, the MPC decided to raise the Central Bank Rate (CBR) from 10.00 percent to 11.50 percent. Furthermore, the MPC decided to augment its instruments for liquidity management by introducing a 3-day Repo. The Committee noted the need to closely monitor liquidity conditions in the market. The MPC will continue to monitor external and domestic developments and their implications on the risks to the overall price stability. In particular, the Committee noted the need to closely monitor liquidity conditions in the market.
In view of the new CBR, the CBK has revised the KBRR consistent with its commitment in January 2015 from 8.54 percent to 9.87 percent. This level of the KBRR will be effective from 7th July, 2015.