The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) is expected to cut the benchmark interest rate by 75-100 basis points at its upcoming meeting on October 8th, 2024.
According to market analysts from NCBA bank and the Kenya Bankers Association (KBA), the MPC decision is likely to be influenced by:
One is the low and declining inflation which is currently below the target range midpoint. September 2024 saw inflation fall further to 3.6%, down from 4.4% in August, due to lower food and fuel prices, and muted demand pressures.
They also cite rising geopolitical tensions which create global economic uncertainty, impacting investments and market volatility.
Surprisingly, despite social unrest disruptions, Kenya’s economy grew by 4.6% in Q2 2024, albeit lower than the 5.6% recorded in the same period of 2023. While a slight recovery in business activity is observed, expectations for stronger growth remain subdued.
However, high interest rates and elevated non-performing loans (NPLs) contribute to sluggish private-sector credit growth, threatening to hinder future economic expansion.
Finally, the Kenyan Shilling exchange rate remains stable against major currencies, supported by strong fundamentals like diaspora remittances and a healthy balance of payments.
Thus they note that the MPC is likely to prioritize stimulating economic growth through a rate cut. However, concerns regarding potential deterioration in NPL ratios and exchange rate volatility may influence the size of the cut.
“In view of the above developments, and a well-anchored inflationary pressure, there is scope to effect a decisive policy rate cut to protect and support a stronger economic growth through private sector credit recovery,” says KBA.
“We thus see merit for the committee to cut the Central Bank Rate by 75-100 bps. That said, this may still not guarantee the desired results. Positively though, CBK is expected to further augment this rate cut with its current Open Market Operations (OMO) which are so far accommodative,” says NCBA in its MPC Note.
