Kenya Leaves Benchmark Rate on Hold at 8.5%

At its July 8th, 2014 meeting, Central Bank of Kenya decided to keep the benchmark interest rate at 8.5 percent for the fourteenth consecutive meeting, as inflation remains within the target range. Policymakers also decided to set the new Kenya Banks' Reference Rate at 9.13 percent.
Central Bank of Kenya | Isabel Felino | 7/8/2014 4:09:14 PM
Excerpts from the statement by the Central Bank of Kenya:

The exchange rate has remained stable supported mainly by foreign exchange inflows through diaspora remittances and increased foreign investor participation in the Nairobi Securities Exchange as well as enhanced confidence following successful issuance of the Sovereign Bond in June 2014. 

A notable development in the banking sector during the period was the introduction of a Kenya Banks' Reference Rate (KBRR) developed as an outcome of discussions between the stakeholders, CBK and lead by The National Treasury. The KBRR was developed as part of the recommendations to enhance the supply of private sector credit and mortgage finance in Kenya by facilitating a transparent credit pricing framework. It will be the base rate for all commercial banks' lending. Given that one of the components of the KBRR is the CBR, this framework is expected to enhance the transmission of monetary policy signals through commercial banks' lending rates. It will be computed as an average of the CBR and the weighted 2-month moving average of the 91-day Treasury bill rates. The KBRR will be reviewed and announced by the CBK through MPC Press Releases after every six months (if conditions do not drastically change) from the effective date and operationalized through a Banking Circular.

The Committee concluded that the monetary policy measures had continued to deliver the desired price stability as overall inflation remains within the target range. In addition, the rise in overall inflation has slowed down. It therefore decided to retain the CBR at 8.50 percent so as to continue anchoring inflationary expectations and maintain price stability. The CBK will continue to monitor the key macroeconomic aggregates and any emergent risks from the external and domestic economies that may impact on price stability.

Considering the above CBR set by the MPC and the weighted 2-month moving average of the 91-day Treasury bill rate, the CBK has computed and set the KBRR at 9.13 percent. This level of the KBRR will be effective from 8th July, 2014 until its next review in January 2015 (if conditions do not drastically change).

Kenya Leaves Benchmark Rate on Hold at 8.5%