Excerpts from the statement by the Central Bank of Kenya:
The Committee noted with concern that overall inflation exceeded the upper bound of the prescribed range of the medium-term target of 5 percent in both July and August 2014. Despite the recent short-term pressures partly reflecting the global strengthening of the US Dollar, the exchange rate has maintained a stable trend.
The exchange rate continued to be supported by resilient foreign exchange inflows through diaspora remittances and sustained foreign investor participation in the Nairobi Securities Exchange (NSE). In addition, sale of foreign exchange by the CBK to commercial banks supported exchange rate stability. The CBK level of usable foreign exchange reserves stood at USD 6,376.95 million (equivalent to 4.21 months of import cover) as at 3rd September, 2014 which was above the minimum requirement of 4 months of import cover. The level of foreign exchange reserves is adequate to cushion the foreign exchange market against any temporary shocks.
The latest data and stress tests show that the banking sector remains resilient. As a result, the annual growth in private sector credit stood at 25.54 percent in July 2014 compared with 25.79 percent in June 2014 which was channeled mainly to productive sectors of the economy. The Committee concluded that the monetary policy measures in place coupled with the effective liquidity management operations will continue to moderate any pressures that might give rise to adverse inflation expectations. In addition, the impact of the base effect in September 2013 on inflation will dissipate from September 2014. The MPC therefore decided to retain the CBR at 8.50 percent given that there were no fundamental structural pressures on inflation, but will pursue a tightening bias in the money market through the CBK monetary policy operations in order to continue to anchor inflationary expectations. The CBK will continue to monitor the key macroeconomic aggregates and any emergent risks from the external and domestic economies that may impact on price stability.