All East Africa - Latest NewsKENYA

Kenya: Central Bank expected to retain policy rate at 10pc

The Central Bank of Kenya (CBK) is next week widely tipped to leave its policy rate unchanged even as banks continue rationing credit.

The Monday meeting comes against the backdrop of sustained sentiment by experts that Kenya’s decision to peg interest rate cap on its base lending rate has eroded the decision-making capacity at the CBK.

Analysts polled by the Business Dailyexpect the Monetary Policy Committee (MPC) to hold the rate, just like it did in November 23, at 10 per cent.

The MPC voted to hold its benchmark lending rate at 10 per cent for the seventh time in a row, saying inflation was expected to drop further.

Inflation in December dropped to a 55-month low of 4.5 per cent, helped by softening food prices as analysts project that the key index will fall further in the first half of 2018.

Stanbic Bank regional economist for East Africa Jibran Qureshi expects no change in the policy stance due to the impact of the capping of rates on commercial lending.

“My principal reasons remain around the transmission concerns in the event of a cut to the CBR, primarily due to the interest rate capping law,” said Mr Qureshi.

“Without the cap, arguably the MPC would have some scope to ease its stance due to subdued core inflation. However I don’t think they will do that now and perhaps will keep a close eye on oil price developments.”

Stephanie Kimani, a research economist at Commercial Bank of Africa (CBA) concurred forecasting the rate will remain unchanged.

“They (MPC) are not going to shift (the rate). The (rate) controls have really limited transmission,” said Ms Kimani.

Similar sentiments were expressed by independent analyst John Kirimi who sees no immediate need for changing the monetary policy stance.

“Inflation rate is below 5 per cent, economic uncertainty looms large with the possibility of failed rains and the attendant effect on food supply and export crops, there is the political instability brought about by quarrelling politicians and continued heavy borrowing to finance mega projects,” said Mr Kirimi.

“These uncertainties would make it unwise to tinker with interest now before we know which way the country is going economically and politically.”

Related posts

Kenya: New college to offer integrity training, EACC says


No survivors as wreckage of small plane found in Kenya


Fears of prosecution as Kenya deports South Sudan rebel spokesman


This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More