Central Bank of Kenya retains key lending rate

Wednesday January 20 2016

Central Bank of Kenya (CBK) Governor Patrick Njoroge during a press conference on December 22, 2015.  PHOTO | DIANA NGILA | NATION MEDIA GROUP

Central Bank of Kenya Governor Patrick Njoroge at a press conference on December 22, 2015. PHOTO | DIANA NGILA | NATION MEDIA GROUP 

By BRIAN NGUGI
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The Central Bank of Kenya (CBK) advisory committee on Wednesday voted to retain the benchmark lending rate at 11.5 per cent for the fifth time in a row, in a move largely in line with market expectations.

In keeping flat the Central Bank Rate (CBR), the policy benchmark, the Monetary Policy Committee (MPC) cited a need to anchor inflation and ensure stability in the financial sector.

“…the Committee concluded that the current inflation pressures are temporary, and that the monetary policy measures currently in place are containing any demand pressures in the economy."

"The CBK will continue to use the instruments at its disposal to maintain overall price stability while ensuring stability in the financial sector,” said a statement signed by MPC chairman CBK Governor Patrick Njoroge.

In a pre-MPC outlook, several analysts interviewed by the Nation had forecast the rate to remain steady, as the shilling hinted at resilience, with the country’s foreign reserves rising gradually and steadily, and inter-bank rates showing stability.

STABLE SINCE NOVEMBER

On Wednesday, the MPC backed this position, saying the foreign exchange market has remained stable since November 2015.

This is despite the rise in US interest rates, the impact of the slowdown in China, and volatility in other global financial markets.

“Stability in the foreign exchange market continues to be supported by a narrowing current account deficit largely due to a lower import bill for petroleum products, recovery in tourism, tea and horticulture exports, and diaspora remittances,” it said.

Dr Njoroge noted that while the three-month annualised inflation increased as a result of the new excise taxes, there were no evident adverse demand pressures in the economy.

The CBK team also retained the Kenya Banks’ Reference Rate (KBRR) at its current level of 9.87 per cent.

Last November, the MPC voted to retain the benchmark lending rate at 11.5 per cent, backing the regulator’s position that commercial banks should not raise lending rates.

The rate has been retained since early July. It was first raised in May to 10 per cent, after remaining at 8.5 per cent since April 2013.

Annual inflation rate accelerated to 8.01 per cent in December of 2015 compared with 7.3 per cent in the previous month, which was above market expectations, according to data by the Kenya National Bureau of Statistics.