This archive report was first published on 23 September 2019.
On September 23, 2019, the Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) made a crucial decision to retain the Central Bank Rate (CBR) at 9.00 percent. This decision was made in the face of global uncertainties and heightened volatility in international markets.
The MPC cited well-anchored inflation expectations and a stable economy as the reasons for retaining the CBR at 9.00 percent. According to the Committee, month-on-month overall inflation remained within the target range in July and August 2019, and is well anchored.
Food inflation declined to 6.7 percent in August from 7.9 percent in July following improved weather conditions. Non-food-non-fuel (NFNF) inflation remained below 5 percent, indicative of muted demand pressures and spillover effects of the excise tax indexation in July and the recent increase in fuel prices.
CBK Governor Dr. Patrick Njoroge noted that overall inflation is expected to remain within the target range in the near term mainly due to expectations of lower food prices with the expected favourable weather conditions, and lower electricity prices reflecting the reduced usage of expensive power sources.
He also stated that recent increase in international oil prices is expected to exert moderate upward pressure on fuel prices, but with limited pass-through effects on inflation.
The foreign exchange market has remained relatively stable, supported by the narrowing of the current account deficit to 4.2 percent of GDP in the 12 months to July 2019 from 5.5 percent in July 2018.
Private sector access to credit has also improved, with private sector credit growing by 6.3 percent in the 12 months to August, compared to 6.1 percent in July. Strong growth in credit to the private sector was observed in the following sectors: trade (8.4 percent); manufacturing (7.5 percent); consumer durables (23.0 percent); private households (8.6 percent); and finance and insurance (6.3 percent).
Dr. Njoroge also noted that the banking sector remains stable and resilient, with the average commercial banks' liquidity and capital adequacy ratios stood at 50.8 percent and 18.3 percent, respectively, in August.
Leading indicators of economic activity such as growth in electricity and cement consumption, tourist arrivals, consumption-based taxes, and imports of intermediate goods, indicate that growth has remained strong in 2019.
According to the MPC Private Sector Market Perception Survey conducted in September 2019, inflation expectations remain well anchored within the target range, mainly due to expectations of lower food prices following improved supply.
