Month-on-month overall inflation fell to 5.7 percent in October 2017 from 7.1 percent in September 2017, thereby remaining within the Government target range. This decline was largely due to lower food prices, particularly for cabbages and Irish potatoes. The decrease in food prices offset the increases in fuel and electricity prices in October. Non-food-non-fuel (NFNF) inflation remained below 5 percent, demonstrating that demand pressures are muted. Despite an increase in international oil prices which has exerted upward pressure on fuel prices, improved weather conditions and the extension of the maize subsidy are expected to continue supporting a further lowering in food prices and a decline in overall inflation in the near term.
The Committee noted that despite the effects of the drought experienced in the first half of 2017, and the prolonged elections in the second half of the year, economic growth has remained resilient. Growth has principally been supported by the services sector particularly the Micro, Small and Medium Enterprises (MSMEs). The economy is expected to grow by 5.1 percent in 2017, and to pick up strongly in the medium term supported by a stable macroeconomic environment.
The MPC Private Sector Market Perception Survey conducted in November 2017 showed that inflation was well anchored and is expected to decline in the short term. Respondents expected the exchange rate to remain stable supported by strong diaspora remittances and sufficient CBK foreign exchange reserves. The Survey also showed optimism in the economic prospects, with the conclusion of the elections, improved weather conditions, and continued public investment in infrastructure.
The Committee concluded that inflationary pressures in the economy were muted, and inflation was expected to continue to decline in the short term. The MPC therefore decided to retain the Central Bank Rate (CBR) at 10.0 percent. The MPC continues to monitor the impact of the interest rate caps on the effective transmission of monetary policy. The CBK will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary.