CBK holds key rate amid jitters of higher inflation

The maximum cost of loan remains unchanged after the Central Bank of Kenya (CBK) retained the base lending rate at nine per cent amidst the spectre of inflationary pressure following a raft of new consumer taxes.

The Monetary Policy Committee (MPC) held the benchmark rate despite possible pressure on the shilling after the expiry of the International Monetary Fund (IMF) shilling cushion.

The committee said the current monetary policy stance had protected the shilling and reduced the threat of money-driven inflation. The MPC cut the rate by 50 basis points at its last sitting in July to boost the economy, pricing maximum loans at 13 per cent.

“The committee noted that inflation expectations remained well-anchored within the target range, but concluded that there was need to monitor the second-round inflationary effects arising from the VAT on petroleum products, and any perverse response to its previous decisions,” said the MPC.

Headline inflation, which slowed to 4.04 per cent last month, remained within the government’s preferred band of 2.5-7.5 per cent, the CBK said.

The Central Bank added that inflation is expected to rise in the near term, following the implementation of fuel tax as well as increases in international oil prices.

President Uhuru Kenyatta last week signed into law the Finance Act 2018, which comes with several new consumer taxes and levies aimed at growing government revenue and reducing the budget deficit as demanded by the IMF.

Dr Patrick Njoroge, who chairs the MPC, however, said a relatively stable forex market, a narrower current account deficit and a build-up of forex reserves that cushion the economy from unforeseen shocks informed the decision to retain the base rate.

“The committee therefore decided to retain the CBR (Central Bank Rate) at nine per cent,” he said.