Kenya’s Monetary Policy Committee (MPC) will be meeting on Wednesday, January 26, 2022.to review the current policy stance.
The meeting will be held on a backdrop of softening inflation and continued economic recovery. Inflation eased to 5.73% in December from 5.80% a month earlier.
While risks are somewhat tilted to the downside, the prospect of overshooting the target remain largely muted.
Meanwhile, the economy is on course for its fastest growth in years, as activity bounce back from the Covid induced shock.
In the third quarter, GDP expanded by 9.9%, with a broad-based increase in output, extending the recovery into its fourth quarter.
In spite of the reduced output gap and some risks to inflation from supply bottlenecks and persistently high food and fuel prices, prospects of the CBK joining the global tightening bandwagon remain muted.
Confronted by rising inflation, partly due to firming demand, major central banks have begun withdrawing the extra-ordinary pandemic stimulus.
Even then, the road to ’normal’ might be long and potentially rugged considering the degree of uncertainty presented by the pandemic.
This will be a source of volatility for assets across the spectrum, including the yield curve.
Faster normalization by major central bank may cause local yields to rise in an effort to protect local capital and minimize potential pressure on the shilling.
The Monetary Policy Committee is the organ of the Central Bank of Kenya responsible for formulating monetary policy. Monetary policy consists of decisions and actions taken by the Central Bank to ensure that the supply of money in the economy is consistent with growth and price objectives set by the government.
The objective of monetary policy is to maintain price stability in the economy. Price stability refers to the maintenance of low and stable inflation.
The MPC meets at least once every two months and reviews data and analysis from various sources including the Central Bank Departments enabling it to decide on any action to maintain or vary its stance.
Commentary from NCBA Research.
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