Kenya Holds Key Interest Rate Unchanged at 9%


The Central Bank of Kenya left its benchmark interest rate unchanged at 9% at its May 27th 2019 meeting, as widely expected. Policymakers said that the decision is appropriate and based on the backdrop of domestic stability, optimistic growth prospects, improving weather conditions in most parts of the country and increased uncertainties in the global financial markets. The Committee added that inflation expectations remained well anchored within the target and that the economy was operating close to its potential, but will keep an eye on possible spillovers of recent food and fuel price increases.

Excerpts from the MPC Press Release:

Month-on-month overall inflation remained within the target range in March and April 2019. The inflation rate stood at 6.6 percent in April compared to 4.4 percent in March, mainly reflecting increases in food prices attributed to depressed supply of vegetables and other fastgrowing food crops following the delayed onset of the long rains. Food inflation rose to 7.7 percent in April from 2.9 percent in March. However, non-food-non-fuel (NFNF) inflation remained below 5 percent, indicating that demand pressures and the spillovers of the rise in food and fuel prices were muted. Overall inflation is expected to remain within the target range in the near term largely due to expectations of lower food prices following improving weather conditions, and lower electricity prices with the reduced usage of expensive power sources. Additionally, a timely release of maize stocks from the Strategic Grain Reserve will support the stability of food prices.

Private sector credit grew by 4.9 percent in the 12 months to April, compared to 4.3 percent in March. Strong growth in credit to the private sector was observed in the following sectors: manufacturing (7.9 percent); trade (8.4 percent); finance and insurance (13.3 percent); and consumer durables (16.4 percent). Private sector credit growth is expected to continue to strengthen in the remainder of 2019. The banking sector remains stable and resilient.

The economy recovered strongly in 2018, with real GDP growth increasing to 6.3 percent from 4.9 percent in 2017. This reflected a strong recovery in agriculture, manufacturing, and a buoyant services sector, particularly trade, information and communication, accommodation and restaurants, transport and storage, and finance and insurance. Leading indicators of economic activity show that growth remained resilient in the first quarter of 2019, despite the delayed onset of the long rains. Growth in 2019 is expected to be supported by agricultural production, robust growth of MSMEs and the service sector, increased foreign direct investment and a stable macroeconomic environment. Additionally, the continued alignment of Government spending to the Big 4 priority sectors is expected to boost economic activity in manufacturing, agriculture, construction and real estate, and health sectors.

The MPC Private Sector Market Perception Survey conducted in May 2019 indicated that inflation expectations remained well anchored within the target range, with expectations of lower food prices following improved weather conditions, and the stability in the exchange rate.  

The Committee noted that inflation expectations remained well anchored within the target range, but there is need to remain vigilant on possible spillovers of recent food and fuel price increases. The Committee further noted that the economy was operating close to its potential. The MPC concluded that the current policy stance remains appropriate, and will continue to monitor any perverse response to its previous decisions. The Committee therefore decided to retain the CBR at 9.00 percent. 

The MPC will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary.

Kenya Holds Key Interest Rate Unchanged at 9%


Central Bank of Kenya | Luisa Carvalho | luisa.carvalho@tradingeconomics.com
5/28/2019 10:52:17 AM