This archive report was first published on 24 July 2019.
July 24, 2019 - The Central Bank of Kenya (CBK) has maintained its lending rate to commercial banks at 9 percent for the eighth consecutive time, reflecting the stability of the country's economy.
The decision was made during the Monetary Policy Committee (MPC) meeting held on Wednesday, with the CBK attributing the hold to contained inflation and optimism for economic growth.
According to the CBK, the MPC Private Sector Market Perception Survey indicates that inflation expectations remain well-anchored, mainly due to expectations of lower food prices following improved weather conditions.
Additionally, the survey shows increased optimism that growth will remain strong in 2019, driven by factors such as the continuing payments of pending bills and public investments.
Despite the steady inflation rate, which has remained within the government-targeted range of 2.5 to 7.5 percent, June inflation rose by 0.2 points to 5.7 percent, mainly due to the delayed onset of the long rains season and its impact on essential commodities.
However, growth in private sector credit has been a positive factor, increasing to 5.2 percent in June from 4.4 percent in May, indicating optimism for increased economic output.
The foreign exchange market has also remained stable, with the current account balance as a share of GDP falling to 4.2 percent over 12 months to June 2019 from 4.4 percent in May.
Remittances have also been on the rise, increasing by Ksh.30.6 billion ($295 million) in June to reach a cumulative 12-month flow of Ksh.287 billion ($2.8 billion).
With a strengthened current account and strong FX growth, the CBK's usable foreign exchange reserves have remained steady at Ksh.1 trillion ($9.7 billion) or an equivalent 6.2-month import cover for the economy.
Despite the sound economic position, the depreciation of the Kenyan shilling in recent weeks remains a concern for the CBK, with the shilling closing trading on Tuesday at Ksh.103.76 against the US dollar.
The weakening shilling has been attributed to increased liquidity in the finance market and increased demand for the dollar by traders, as well as the effects of the recently declared demonetization of the old series Ksh.1000 notes.
The CBK has warned that there is a need to be vigilant on the possible effects of the recent increases in fuel prices, the ongoing demonetization, and the increased uncertainties in the external environment.
