Why Kenya’s central bank will maintain its prudent monetary policy stance

maintain its prudent monetary policy stance

The Central Bank of Kenya (CBK) says it will hold its next Monetary Policy Committee (MPC) meeting on Wednesday, March 27, 2019.

In the last meeting held January, it maintained the base lending rate at 9% largely on stable macro-economic fundamentals.

However, the regulator said it will revisit the issue of the interest rate cap, that capped lending rates at 4.0% above the Central Bank Rate (CBR) with an aim of having structural reforms for uplifting the growth and expansion on the MSMEs in the medium to long term.

With the macroeconomic environment expected to remain stable inflation declining driven by stable and low food and fuel prices as well as subdued demand pressure, CBA monthly Economic Report for February observed that “This could see the monetary policy bend towards easing especially if the narrowing output gap proves non-inflationary. Even then, the central bank will remain cautious of pervasive effects of the interest rate cap.”

“We maintain the view that the central bank will stay pat, for now. With a fast narrowing output gap, low credit growth notwithstanding, and prospects of perverse
reactions to adjustments in the policy rate, a wait and see may be the best bet for the central bank, in our view.”

Cytonn Investments’ 2019 annual outlook expects the monetary policy to remain relatively stable in 2019, and lean to a possible easing, as the CBK monitors Kenya’s inflation rate and the currency.

Genghis Capital PlayBook 2019 as regards to the monetary policy side, the central bank rate will be maintained throughout the year this is because “Private sector credit remains anemic and has trailed the Central Bank target as outlined in the bi-annual Monetary policy Statement reports…this has been a major concern raised by CBK.”