Kenya Leaves Interest Rate Unchanged at 9%


The Central Bank of Kenya held its benchmark interest rate steady at 9.0 percent at its September 25th 2018 meeting, as widely expected and after trimming it by 50 bps in the previous meeting. Policymakers noted inflation expectations remained well anchored within the target range, still they will continue to monitor closely the inflationary effects from the VAT on petroleum products.

Excerpts from the MPC Press Release:

Month-on-month overall inflation remained within the target range in July and August 2018, largely due to lower food prices. The inflation rate fell to 4.0 percent in August from 4.4 percent in July, following decreases in food prices which offset the increase in energy prices, including the increase in the price of charcoal. Nonfood-non-fuel (NFNF) inflation remained below 5 percent, indicating that demand-driven inflationary pressures remain muted. Overall inflation is expected to rise in the near term, following the implementation of VAT on petroleum products in September 2018 and its impact on other prices, as well as increases in international oil prices. However, it is expected to remain within the target range due to lower food prices reflecting favorable weather.

The MPC Private Sector Market Perception Survey conducted in September 2018 showed that inflation expectations were well anchored within the target range in the near term on account of lower food prices. However, respondents expected inflation to rise slightly due to higher energy prices attributed to the impact of the VAT on petroleum products and increases in international oil prices. The Survey indicated sustained optimism for stronger growth in 2018 and an improved business environment. Respondents attributed this optimism to, among others, a rebound in agriculture, pick-up in private sector economic activity, focus by the Government on the Big 4 priority sectors, strong forward hotel bookings, renewed business confidence due to the ongoing war against corruption, and a stable macroeconomic environment. The optimism was tempered by the expected impact of the VAT on petroleum products on the cost of doing business.

The Committee noted that inflation expectations remained well anchored within the target range, but concluded that there was need to monitor the second-round inflationary effects arising from the VAT on petroleum products, and 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 Leaves Interest Rate Unchanged at 9%


Central Bank of Kenya | Stefanie Moya | stefanie.moya@tradingeconomics.com
9/25/2018 2:06:37 PM