Central Bank of Kenya to Announce Monetary Policy on May 27

The current surge in COVID-19 cases and inflation well anchored, the Central Bank of Kenya is likely to maintain the status quo on policy rates.

Dr Patrick Njoroge, CBK Governor.

The Central Bank of Kenya (CBK) on Friday announced its next meeting of the Monetary Policy Committee (MPC) will be held on May 27.

The MPC in the previous meeting in April sharply cut its benchmark lending rate to 7.0 percent from 7.25 percent,  to cushion the impact of the coronavirus adversely affecting economic activities.

The April meeting was a build-up from the raft of measures announced in March to boost commercial banks’ liquidity and reduce financing costs for businesses during this crisis, including a 100bps reduction in the Cash Reserve Ration (CRR) and the Central Bank Rate (CBR).

During the period,  the MPC said 43.5 percent of the additional Ksh 35 billion liquidity from the reduction in CRR had been utilized for the partial restructuring of Ksh 81.2 billion loans.

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“We foresee the MPC taking a ‘wait and see’ approach as it observes the effects of the 25 bps rate cut seen in April 2020 sitting,” Cytonn Investments’ take.

On the other hand, NCBA Analysts state that the CBK) still has some room to maneuver.

“According to our assessment, the policy body is likely to consider slashing the central bank rate (CBR) by up to 25bps during its Wednesday policy-setting meeting. This could see CBR fall to 6.75% – the lowest in close to 9 years.”

They further note easing measures will largely be supported by stable inflation expectations as weaknesses in consumer demand offset intrinsic price increases linked to supply shortages. This should strap the inflation rate within the government’s target range of 2.50% to 7.50%.

“Meanwhile, a healthy US$ 8.85Bn in foreign exchange reserves should anchor confidence in the central bank’s ability to support the fragile evolution of the Kenya shilling.”

“Though cutting the policy rate communicates the CBK’s intent of supporting the economy, the bene-
fits of a lower policy rate environment may be somewhat lost during this uncertain time. Complimentary tools may be needed to ensure that the intended benefits of accommodative monetary policy reach targeted audiences,” they note.