Extracts from the press release of the MPC Meeting
The Monetary Policy Committee met on 7th May, 2013 to evaluate the economy's response to its monetary policy stance. The Committee noted that the monetary policy measures adopted continued to support a low and stable inflation as well as exchange rate stability. The key monetary aggregates also remained within their respective targets.
The Committee observed and analysed the following outcomes in the market since its last meeting:
The overall and the non-food-non-fuel month-on-month inflation rates remained within the Government medium-term target of 5 percent in March and April 2013.
The exchange rate remained stable and strengthened marginally in April 2013. This partly reflected the increasing confidence in the foreign exchange market following the elections in March 2013 coupled with the build-up of foreign exchange reserves.
Short-term interest rate movements were coordinated by the Central Bank Rate (CBR) while Open Market Operations ensured that they remained stable. Commercial banks average lending rates continued their slow downward trend. Moreover, private sector credit growth during the first quarter of 2013 reached the traditional sectors of the economy.
The Government domestic borrowing programme for the Fiscal Year 2012/13 remains consistent with the public debt thresholds in the Medium-Term Debt Management Strategy.
Detailed analysis of the banking sector, including stress tests conducted on commercial banks' balance sheets, showed that the sector remains solvent and resilient.
The Committee noted that confidence in the economy has increased following the elections in March 2013. The NSE-20 index has remained buoyant with increased foreign participation. Diaspora remittances have remained resilient, averaging above USD100 million per month since October 2012.
The Committee concluded that the monetary policy measures continue to deliver the desired results, providing policy space to encourage the private sector to fulfil its growth augmentation role.
The Committee therefore decided to reduce the CBR by 100 basis points to 8.50 percent. It will continue to monitor the outcomes on the key macroeconomic aggregates as well as any emergent risks to ensure that the policy stance continues to deliver price stability.