With 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.
This will be the central bank’s first bi-monthly monetary policy review for the current fiscal, according to market analysts.
The Monetary Policy Committee (MPC) meets Wednesday, against the backdrop of COVID-19 shock and its spillover to the economy.
In its last meeting on 26th May, it maintained the Central Bank Rate (CBR) at 7.00 per cent.
The eighth consecutive neutral policy stance.
However, the inflation rate has been rising, fueled by higher commodity prices, supply-chain pressures and the gradual return of demand as governments ease Covid restrictions.
Since the previous meeting, inflation has risen to 6.3 per cent in June from 5.76 per cent when the committee last met.
The June rate was a 16 month high and is above the midpoint of the government’s target range (2.5%-7.5%).
Currently, the country is battling a fourth wave of the coronavirus pandemic with a positivity rate of 14.2 per cent.
On Tuesday, 976 people tested positive for the disease, from a sample size of 6,896 tested in the last 24 hours.
Total confirmed positive cases stand at 198,935 and cumulative tests so far conducted are at 2,103,997 according to data from the Ministry of Health.
“Next 2 to 3 weeks are likely to be very rough for Kenya,” said Dr Githinji Gitahi, Group CEO, Amref Health Africa.
“But it doesn’t have to be if we all individually avoid crowding, close contact, closed spaces and mask always in public spaces. It’s sad we are facing this with a 2 per cent vaccination rate.”
Dr Ahmed Yakub Kalebi an Independent Consultant Pathologist further emphasises that the country has been witnessing a higher weekly caseload of COVID-19 nationally compared to what was reported in July 2020 during the 1st wave.
He is also concerned that the number of tests being done remains more or less the same.
“The 4th wave is unravelling fast driven by high caseload in Nairobi albeit under-testing and underreporting of cases nationally, at a time when hospitalization and deaths are also rising while the delayed vaccination campaign is unlikely to happen before the 4th wave bends downwards,” he notes.
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What Analysts Project
“We expect the CBK MPC meeting to retain the benchmark policy rate at 7.00%. We are of the view that inflation expectations remain anchored.
The key risk that the policymakers will face will be growth concerns against the backdrop of COVID-19 fallout.
We thus opine that the monetary policymakers will adopt a neutral monetary policy stance.”
NCBA Market Research
“We expect the regulator to show more tolerance to inflation and may join the bandwagon of policymakers making a case for sustained easing, given the transitory nature of the recent pressures.
Ultimately, the regulator could leave policy unchanged although there remains scope for further easing.”
“The need to support the economy by maintaining an accommodative monetary policy stance to strengthen the ongoing recovery.
The current macro and business environment fundamentals might constrain the transmission of further easing, despite the need to stimulate economic growth.
Therefore, we believe that any additional rate cuts will not lead to a rise in private sector credit growth as elevated credit risks persist in the current environment.
However, the speed of vaccine inoculation will determine how fast normalcy will return in key sectors such as tourism and wholesale/retail trade.”
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