Kenya Holds Key Rate At 10%


The Central Bank of Kenya held its benchmark bank rate steady at 10 percent at its May 29th 2017 meeting, in line with market expectations. Policymakers said inflation is expected to remain above the 2.5-7.5 percent target in the near term although food prices are likely to ease amid improved weather conditions.

Excerpts from the MPC Press Release:

The meeting was held against a backdrop of improved weather conditions, expectations of lower food prices, and general macroeconomic stability. 

The inflation rate rose to 11.5 percent in April from 10.3 percent in March 2017, due to increases in food prices, notably sifted maize flour, sugar, kales (sukuma wiki) and tomatoes. Nevertheless, the recent rains and interventions by the Government are expected to provide some relief. Non-food-non-fuel (NFNF) inflation remained stable below 5 percent, suggesting that demand pressures and pass-through effects of high food prices are muted.

The foreign exchange market has remained stable, supported by a narrower current account deficit. Receipts from tea and horticulture are  resilient despite lower export volumes due to adverse weather conditions in the first quarter of 2017. Additionally, receipts from tourism, coffee exports, and diaspora remittances have remained strong. 

Although a modest pick-up in global growth is expected in 2017 there are considerable risks to the outlook. Uncertainties remain on the economic policies of the U.S. administration, the Brexit outcome, and normalization of monetary policy in the advanced economies. These risks also have potential implications on global financial market stability.

The Committee concluded that overall inflation is expected to remain above the Government target range in the near term due to elevated prices for some food items. Nevertheless, the prevailing policy stance had reduced the threat of demand driven inflation. The MPC therefore decided to retain the Central Bank Rate (CBR) at 10.0 percent. The Committee will continue to closely monitor developments in the domestic and global economies, and stands ready to take additional measures as necessary.

Central Bank of Kenya | Joana Taborda | joana.taborda@tradingeconomics.com
5/29/2017 1:53:05 PM