The Central Bank of Kenya (CBK) Monetary Policy Committee on Monday lowered its benchmark lending rate to 8.25% from 8.5 percent lowering borrowing costs for consumers. The MPC attributed the lowering to inflation expectations being within the target range of 2.5% to 7%.
This is the second rate cut since the repeal of the interest rate cap three months ago, having reduced the Central Bank Rate (CBR) by 50bps in November. It is also the lowest in more than eight years.
However, the MPC acknowledged that the economy continued to operate below its potential level and the tightening of fiscal policy.
“The Committee assessed that the effects of the lowering of the CBR in November 2019 continued to be transmitted in the economy, but also noted that there was room for further accommodative monetary policy to support economic activity,” said Dr. Patrick Njoroge, chair of the MPC.
The meeting was held against a backdrop of domestic macroeconomic stability, potential risks to food supply and increased global uncertainties.
Kenyan market analysts had expected a wait-and-see approach, as it filters the effect of its November MPC rate cut decision.
“For the yield curve, while the cut may help soften pressure, notably on the short end, persistent fiscal dominance may limit any downward adjustment. The government’s preference for local borrowing may still keep expectations fairly elevated. For equities, sentiment may be supported although gains on this backdrop may be temporary,” said NCBA Analysts in their MPC reaction.
“Undoubtedly, the committee still has scope to ease rates but whether this will cure demand within the current macroeconomic back- drop remains to be seen.”
In its last meeting in November, the MPC cut the Central Bank Rate (CBR) by 50bps to 8.5% following the repeal of the interest rate cap.