CBK policy team retains key rate at 8.5 per cent

BY JAMES  ANYANZWA

NAIROBI, KENYA: Central Bank retained its benchmark-lending rate to commercial banks at 8.5 per cent for the third consecutive time.

The banking regulator cited stability in the shilling exchange rate and a general decline in the prices of goods and services for holding its central Bank rate (CBR) unchanged.

The Bank’s monetary policy committee (MPC) noted that the overall inflation declined in the month of October while the strengthening of the local currency against major currencies moderated the impact of imported inflation.

Central Bank Governor  Prof Njuguna Ndung’u said regulator would continue to monitor key macroeconomic aggregates and any emergent risks that may impact on price stability.

Ndung’u who is also the chairman of the monetary policy committee noted that the new VAT measures had a one-off impact on inflation.

“There were also no demand- driven inflationary pressures which would require a revision of the current monetary policy stance,” he said.

The committee noted that confidence in the economy has been sustained with activities at the Nairobi Securities Exchange (NSE) remaining buoyant driven by rising foreign investor participation.

The NSE-20 Share Index rose to 4,992.9 in October from 4,793.2 in September while Diaspora remittances averaged US$107 million per month in the last six months.

Energy items

The overall month-on-month inflation declined to 7.76 per cent in October from 8.29 per cent in September, largely reflecting a fall in the prices of all energy items as well as some food items and the stable exchange rate.

During the period under review the local unit strengthened supported by foreign exchange inflows and liquidity management.

It fluctuated within a range of Sh84.72 and Sh86.79 against the US Dollar compared to a range of Sh86.65 and Sh87.58 in September.

The CBK level of foreign reserves stood at $5.89 billion at the end of October compared to $5.75 billion (equivalent to 4.11 months of import cover) at the end of August 2013.

The Central Bank Rate continued to determine movements in the short term interest rates during the period under review.