The Central Bank of Kenya may retain its lending rate at 7% ahead of the next scheduled policy review on November 26.
The Central banks’ Monetary Policy Committeee has maintained the central bank rate (CBR) since April and injecting liquidity to counter economic slowdown because of the coronavirus pandemic.
The MPC last met on 29th September 2020.
Ahead of the meeting, the CBK’s foreign exchange reserves have been dwindling dropping by KSh44 billion to stand at $8,223 million (KSh894.7 billion) on October 22, from $8,627 (Sh938.6) billion on September 24.
On the other hand, the Kenyan currency has been weakening.
“The monetary policy committee (MPC) is expected to maintain a dovish path as the need to plug the output gap increases. This will be supported by muted demand pressures in the economy which should hold uphold inflation within the statutory target band,” NCBA Market Analysts note.
However, the analysts are concerned due to the uncertainty of a second of coronavirus infections and the tightening of social distance measures.
“After stabilizing at about 5.0% in September, the positivity rate has risen back towards 10% with widespread contagion across the country. The tightening of social distancing measures could dampen the fragile economic recovery, sustaining a wider output gap.
This may be exacerbated by rising political uncertainty as the country gears up for constitutional changes in 2021. Besides the inherent uncertainty, this political process could elevate public spending, further shifting liquidity to the sovereign.”
