Excerpts from the statement by the Central Bank of Kenya:
Overall month-on-month inflation declined from 6.02 percent in December 2014 to 5.53 percent in January 2015 mainly reflecting continued moderation in the prices of fuel, but has risen slightly as predicted to 5.61 percent in February 2015. However, the fall in fuel prices was partly offset by a rise in the prices of some food items. The month-on-month non-food-non-fuel inflation declined from 3.65 percent to 3.43 percent during the period, indicating that there were no significant demand-driven inflationary threats to the economy.
The exchange rate of the Kenya Shilling against the US Dollar maintained its stable trend despite volatility in the global foreign exchange markets. The Kenya Shilling has continued to benefit from the strong investor confidence recently boosted by the approval of the International Monetary Fund (IMF) supported precautionary facility. This facility blends the Stand-By Arrangement (SBA) and the Stand-By Credit Facility (SCF) amounting to USD688.3 million and will allow the Government to access resources from the IMF to alleviate balance of payments shocks to the economy.
The Central Bank Rate (CBR) continued to coordinate movements in the short-term interest rates during the period. In addition, the liquidity management operations by the CBK, through Open Market Operations (OMO), sustained the stability of the interbank market interest rate.
The Committee concluded that the monetary policy measures, coupled with the favourable impact of lower international oil prices continued to support price stability. However, the divergent monetary policy paths taken by the major advanced economies may cause volatility in the global foreign exchange markets. This could lead to spill-over effects on the domestic foreign exchange market and domestic inflation that should therefore be monitored. In view of these risks, the Committee decided to retain the CBR at 8.50 percent. The MPC will continue to monitor the key macroeconomic aggregates and any emergent risks from the external and domestic economies that may impact on price stability.