Excerpt from the statement by the Central Bank of Kenya:
The overall inflation declined from 8.29 percent in September 2013 to 7.76 percent in October 2013. The results are an indication of a moderation of inflationary pressure in the economy that also reflects the fact that inflationary expectations have not changed
even after implementation of the VAT Act in September 2013.
The exchange rate strengthened during the period, supported by foreign exchange inflows and liquidity management.
The Committee noted that confidence in the economy has been sustained. Activity at the Nairobi Securities Exchange (NSE) remains buoyant with rising foreign investor participation. Diaspora remittances have averaged USD 107 million per month in the last six months. In addition, the MPC Market Perceptions Survey conducted in October 2013 showed that the private sector expects inflation and the exchange rate to remain stable, and growth to be strong in 2013.
Despite the above developments, the Committee noted that the projected weak recovery in the global economy and the instability in the Middle East and North Africa continue to pose risks to the macroeconomic outlook. The recession in the Eurozone has slowed down export earnings from tourism while the temporary partial shutdown of the US government in October 2013 could affect Diaspora remittances from North America in the short-term. These developments coupled with the volatile international oil prices remain a threat to price stability.
The Committee therefore decided to retain the CBR at 8.50 percent and will also continue to work with stakeholders in order to improve the mechanisms for liquidity management. In addition, the CBK will continue to monitor the key macroeconomic aggregates and any emergent risks that may impact on price stability.