Kenya Keeps Key Rate Unchanged at 10.5%
The Central Bank of Kenya left its benchmark interest rate on hold at 10.5 percent at its July 2016 meeting, saying a rise in inflation is expected following a hike in fuel taxes. The decision came in line with market expectations and follows a 100bps cut in May.
Excerpts from the statement by the Central Bank of Kenya:
Overall inflation increased to 5.8 percent in June 2016, from 5.0 percent in May, but remained within the Government target range. The CPI category food and non-alcoholic beverages accounted for 3.8 percentage points of the monthon-month inflation in June from 2.8 percentage points in May. This increase waslargely due to prices of some food items such as tomatoes, Irish potatoes, and cabbages. On the other hand, month-on-month non-food-non-fuel (NFNF) inflation declined to 5.0 percent in June from 5.4 percent in May. The 3-month annualised NFNF inflation fell to 3.3 percent in June from 5.2 percent in May, indicating that there were no significant demand pressures in the economy.
The foreign exchange market has remained stable, reflecting a narrower current account deficit due to a lower import bill, improved tea and horticulture exports, and stronger diaspora remittances. The stability was also supported by the CBK’s closer monitoring of the market before and after the U.K. vote to leave the European Union (Brexit).
The CBK’s foreign exchange reserves currently stand at USD7,794.1 million (5.1 months of import cover) up from USD7,682.0 million at the end of May 2016. These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF) continue to provide adequate buffers against short-term shocks.
The banking sector continues to stabilise with improving liquidity conditions, and stable non-performing loans in May and June. The ratio of gross non-performing loans to gross loans fell marginally from 8.5 percent in May to 8.4 percent in June 2016. The CBK will continue to closely monitor credit and liquidity risks.
The performance of the economy remains strong, posting a growth of 5.9 percent in the first quarter of 2016, compared with 5.0 percent in a similar period of 2015. Positive growth rates were registered across all sectors of the economy. Improved security and confidence in the economy continued to support the recovery in tourism.
The MPC Market Perception Survey conducted in July 2016, shows the private sector remains optimistic for a higher growth in 2016 supported by macroeconomic stability, infrastructure investment, strong agriculture performance, and tourism recovery.
The Committee also reviewed the Kenya Banks’ Reference Rate (KBRR). In line with the framework, the CBK has revised the KBRR to 8.90 percent from 9.87 percent, effective from July 25, 2016.
7/25/2016 3:44:31 PM