Excerpts from the MPC Press Release:
The Monetary Policy Committee (MPC) met on July 17, 2017, to review the outcome of its policy decisions and recent economic developments. The meeting was held against a backdrop of declining food prices, sustained macroeconomic stability, and continued resilience of the economy.
Month-on-month overall inflation fell to 9.2 percent in June from 11.7 percent in May 2017, largely due to decreases in food prices, particularly Irish potatoes, kales (sukuma wiki), tomatoes, cabbages, sifted maize flour, sugar, and milk. The fall in prices of these key food items reflected the impact of the recent rains, and Government measures. Non-food-non-fuel (NFNF) inflation has remained below 5 percent over the last seven months, suggesting that demand pressures remain subdued. Overall inflation is expected to continue to decline over the next few months, supported by lower food and fuel prices.
The economy remained resilient in the first quarter of 2017, recording a growth rate of 4.7 percent relative to the first quarter of 2016. This performance was supported by stable macroeconomic conditions, despite poor performance of the agriculture sector due to adverse weather conditions. Strong performance was recorded in the transport, real estate, construction, mining and quarrying, tourism, and information and communication sectors. This is despite the impact of the slowdown in private sector credit growth.
The MPC Private Sector Market Perception Survey conducted in July 2017 showed that inflation was expected to decline due to lower food prices and Government interventions already in place. However, there were mixed views with regard to growth in 2017. Non-bank private sector firms expect a stronger growth relative to the May survey, largely due to macroeconomic stability and ongoing public infrastructure investments. On the other hand, banks’ expectations remain unchanged on account of weaker private sector credit growth and concerns over the forthcoming elections.
The outlook for the global economy remains uncertain, particularly with regard to the direction of U.S. economic and trade policies, normalization of monetary policies in the advanced economies and the Brexit outcome.
The Committee concluded that the current policy stance remains appropriate. The MPC therefore decided to retain the Central Bank Rate (CBR) at 10.0 percent in order to continue to anchor inflation expectations. The CBK will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary.