Analysts expect steady lending rate as CBK team meets

Rich Management Chief Executive Officer Aly-Khan Satchu responds to a question at an investors' meeting to announce the full year 2014 financial results, at Hilton Hotel on February 26, 2015. Mr Satchu has said inflation has peaked and he expects the central banker to bank some of his bona fides and leave rates unchanged. PHOTO | SALATON NJAU | NATION MEDIA GROUP

What you need to know:

  • 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 Central Bank of Kenya advisory committee meets on Wednesday, even as analysts on Monday projected that they expect the Monetary Policy Committee to vote to leave the benchmark lending rate unchanged.

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

On Monday, the shilling held steady at 102.3 against the dollar, reflecting last week’s levels.

Sterling Capital Investment Director John Kirimi said: “I guess CBK will not change the rate. Inflation is edging up and the shilling is relatively stable. I think they need a bit more time to see the direction that the national economy will take in view of what is happening around the world. For example, slowing growth in China and other emerging economies, collapsing oil prices and interest rates in the US.”

Nairobi-based analyst Aly Khan Satchu said: “I would like to think the MPC will stand aside this time around. The Central Bank acted pre-emptively (last November) and governor (Dr Patrick) Njoroge was ahead of the curve. The shilling is just shy of a 5-month high (confounding the naysayers) and is behaving with some resilience. Inflation has surely peaked now and, therefore, I expect the central banker to bank some of his bona fides and leave rates unchanged.”

Economist Michael Chege said: “It would be a big surprise if the MPC agreed to raise the Central Bank Rate. Why? The Treasury has given the indication that it will not go back to domestic borrowing for anything approaching what they did last year."

"Inflation in December rose only marginally above the 7.5 target rate and we should expect it to fall, given the decline in oil prices (locally and internationally) and good rains that should lead to lower food prices. “Food and energy have been the main drivers of inflation. And the shilling has been stable, unlike the case last October when the MPC met.”

MONITORING INFLATION
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 National Treasury had at the close of the year warned of risks of imported inflation in 2016 — with fluctuations in exchange rate, owing to a possible strengthening of the US dollar against the shilling.

However, Treasury Principle Secretary Kamau Thugge has recently said prevailing lower oil prices will help contain inflation.

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