Excerpts from the statement by the Central Bank of Kenya:
Overall inflation decreased in July 2015, and remained within the Government’s target range of 2.5 percent on either side of the 5 percent target. Month-on-month inflation eased to 6.6 percent in July 2015 from 7.0 percent in June 2015, mainly reflecting lower food prices which offset the increase in fuel prices during the period and pass-through effects of the depreciation of the Kenya Shilling.
The foreign exchange market was volatile in early July 2015, but has stabilised reflecting in part the impact of monetary policy measures. In particular, Open Market Operations and the sale of foreign exchange by the Central Bank of Kenya (CBK) have stemmed the volatility and resulted in tight liquidity conditions. The CBK’s foreign exchange reserves stood at USD 6,413 million at the end of July 2015. This level of reserves together with the precautionary facility with the International Monetary Fund provides an adequate buffer against short-term shocks. Consistent with the policy stance adopted by the MPC in its July 2015 meeting, overall liquidity conditions remained tight, with the interbank interest rate rising above the Central Bank Rate (CBR).
The latest data indicates that the banking sector is resilient, though credit and liquidity risks remain.
The Committee concluded that the measures taken in the previous meetings were yet to be fully transmitted to the economy. In particular, the impact of the increase in the Kenya Banks’ Reference Rate (KBRR) takes effect from August 2015. The MPC therefore decided to retain the CBR at 11.50 percent in order to anchor inflation expectations. The CBK stands ready to use the instruments at its disposal to maintain overall price stability.