Kenya’s central bank held its key lending rate unchanged at 9.00 percent noting that “inflation expectations remained well anchored within the target range, and 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,” said Dr. Patrick Njoroge, CBK Governor on Tuesday when the MPC met.
The committee noted that the meeting was held against a backdrop of macroeconomic stability, increased optimism on the economic growth prospects, and heightened uncertainties in the global financial markets.
“Although global growth has continued to strengthen in 2018, the risks have increased particularly with regard to the escalating trade tensions, pace of normalization of monetary policy in the advanced economies, and divergence in the monetary policy stances between the developed and emerging market economies,” the MPC noted.
The inflation rate fell to 5.5% in October, from 5.7% in September attributed to a decline in food prices.
Private sector credit grew by 4.4% in the 12 months to October this year compared with 3.9% in September.
“The MPC Private Sector Market Perception Survey optimism was tempered by sluggish private sector credit growth, concerns over delayed Government spending and the recent increase in fuel prices,” said CBK.
The monetary policy’s direction this year has been expansionary, with the Monetary Policy Committee having lowered the Central Bank Rate (CBR) twice, in the 5 meetings held so far in order to support economic activity.
According to Cytonn Investments, the MPC has cited the economic output to be below its potential level, and there was room for further accommodative monetary policy.
Similarly, Commercial Bank of Africa (CBA Group) also stated that MPC decisions have been attributed in part to the lethargy in private sector lending.
“While the potency of the policy actions in narrowing the gap has been repeatedly questioned, the guidance remains central to yield curve dynamics under the current interest rate regime. Intuitively, the curve has continued to adjust to ensure that yields on sovereign debt remain below the maximum lending rate, pegged on the CBR, to encourage liquidity lending to the productive sector.”
During their meeting in March 2018, the MPC lowered the CBR to 9.5% from the earlier 10.0% that had been set in September 2016. The MPC later lowered the CBR by another 50 bps during their July 2018 meeting to 9.0%, from the 9.5% set in March 2018.