Kenya Interest Rate Steady at 9%


The Central Bank of Kenya left its benchmark interest rate unchanged at 9.0 percent at its November 27th 2018 meeting, as widely expected. Policymakers said that the decision is appropriate and based on the backdrop of macroeconomic stability, economic growth prospects and uncertainties in the global financial markets. Policymakers noted that inflation expectations remained well anchored within the target range and that the economy was operating close to its potential. The Committee also said that they continue to monitor global and domestic economic developments and if necessary take additional measures.

Excerpts from the MPC Press Release:

Month-on-month overall inflation remained within the target range in September and October, largely due to lower food prices and muted demand-driven inflationary pressures. The inflation rate fell to 5.5 percent in October from 5.7 percent in September, following decreases in food prices which offset the increase in energy prices and transport costs following the implementation of VAT on petroleum products in September 2018. Non-food-non-fuel (NFNF) inflation remained below 5 percent, indicating that there were no demand pressures in the economy. Looking forward, overall inflation is expected to remain within the target range in the near term, mainly due to expected lower food prices reflecting favorable weather conditions, the decline in international oil prices, and the recent downward revision in electricity tariffs. The recent excise tax adjustment on voice calls and internet services is expected to have a marginal impact on inflation.

Data for the second quarter of 2018 showed a strong pickup of the economy, with real GDP growth averaging 6.0 percent in the first half of 2018 compared to 4.7 percent in the first half of 2017. This outcome was due to a strong recovery in agricultural activity due to improved weather conditions, continued recovery of the manufacturing sector, and resilient performance of the services sector particularly trade, tourism, information and communication, transport, and real estate. Overall growth in 2018 is expected to be strong, supported by recovery in agricultural production, alignment of Government spending to the Big 4 priority sectors, a stable macroeconomic environment, an improved business environment, and a favorable external environment.

The MPC Private Sector Market Perception Survey conducted in November indicated that inflation expectations were well anchored within the target range in the near term on account of lower food prices and reduction in electricity prices. The Survey revealed increased optimism for stronger overall growth in 2018. Respondents attributed this optimism to, among other factors, improved agricultural production, continued infrastructure development, an improvement in the business environment, focus by the Government on the Big 4 priority sectors, a stable macroeconomic environment and the expected increase in trade and tourist arrivals following the commencement of direct flights to the United States. However, the optimism was tempered by sluggish private sector credit growth, concerns over delayed government spending, and the recent increase in fuel prices.

The Committee noted that inflation expectations remained well anchored within the target range, and that the economy was operating close to its potential. The MPC concluded that the current policy stance remains appropriate, and will continue to monitor any perverse response to its previous decisions. The Committee therefore decided to retain the CBR at 9.00 percent. The MPC will continue to closely monitor developments in the global and domestic economy and stands ready to take additional measures as necessary.

 Kenya Interest Rate Steady at 9%


Central Bank of Kenya | Stefanie Moya | stefanie.moya@tradingeconomics.com
11/27/2018 1:53:06 PM