Kenya Cuts Interest Rate by 50 Bps to 9.5%

The Central Bank of Kenya lowered its benchmark interest rate by 50 bps to 9.5 percent at its March 19th 2018 meeting, surprising markets who expected no change. It was the first rate cut since September of 2016. The Committee said there was scope for easing monetary policy as inflation expectations were well anchored within the Government target range and economic output was below potential.

Excerpts from the MPC Press Release

Month-on-month overall inflation fell to 4.5 percent in February 2018 from 4.8 percent in January 2018, thereby remaining within the Government target range. This decline reflected lower food prices particularly for Irish potatoes, cabbages, and sugar. The decrease in food prices outweighed the increase in fuel prices as a result of the rise in international oil prices. Non-food-non-fuel (NFNF) inflation remained below 5 percent indicating that demand-driven inflationary pressures are muted. Overall inflation is expected to be within the Government target range in the near term mainly due to expectations of contained food prices following improved weather conditions.

The MPC Private Sector Market Perception Survey conducted in March 2018 showed that inflation was expected to decline in the near term and reported stronger growth expectations for 2018. The Survey also showed almost unanimous optimism by the private sector for the domestic economic prospects in 2018. Respondents attributed their optimism to a stable macroeconomic environment, favourable weather conditions, improved business environment and investor confidence, continued public investment in infrastructure, expected direct flights to the U.S., and political stability.

The MPC noted that inflation expectations were well anchored within the Government target range, the increased optimism for growth prospects in the economy, and that economic output was below its potential level. Therefore, it concluded that there was scope for easing its monetary policy stance in order to support economic activity. Consequently, while noting the risk of perverse outcomes, the Committee decided to reduce the Central Bank Rate (CBR) to 9.50 percent from 10.00 percent. The MPC will closely monitor the impact of this change in its policy stance. Other developments in the domestic and global economy will also be observed, and the MPC stands ready to take additional measures as necessary.

Kenya Cuts Interest Rate by 50 Bps to 9.5%

Central Bank of Kenya | Stefanie Moya |
3/19/2018 2:22:40 PM