The Central Bank of Kenya kept its benchmark lending rates unchanged at 10.5% in August, as expected by analysts.
“The MPC noted that inflation is already within the target band and is expected to decline further as food inflation is expected to come down. The Committee also noted that inflationary pressures had eased as non-food, non-fuel inflation declined,” it said on Wednesday.
The central bank’s efforts to tame inflation seem to be paying off as the inflation rate dropped to 7.3% in July 2023, the lowest level in a year.
The inflation rate fell within the bank’s target range of 2.5% – 7.5%, after staying above it for 12 consecutive months.
The main driver of the decline was the slower increase in food prices, which rose by 8.6% year-on-year, compared to 15.3% in July 2022.
The core inflation rate, which excludes food and energy prices, also eased to 3.8% in July, down from 4.1% in June. This suggests that the aggregate demand in the economy is weakening, as consumers and businesses adjust to the higher interest rates and tighter credit conditions imposed by the central bank.
However, the inflation outlook remains uncertain, as the currency depreciation continues to exert upward pressure on the prices of imported goods and services.
“The committee further noted that the impact of the tightening of monetary policy in June 2023 to anchor inflationary expectations was still transmitting in the economy. In view of these developments, the MPC decided to retain the Central Bank Rate (CBR) at 10.50 per cent.”