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CBK retains benchmark rate at 11.5pc on improved market expectations

By Patrick Alushula | January 21st 2016
The Central Bank Governor Patrick Njoroge stresses point to the Senate Committee on Finance,Commerce and Budged when he appeared before the Committee to answer questions on the up scaliting Minimum Capital requirements for Commercial Banks at Parliament Buildings 27/07/15. (PHOTO: MOSES OMUSULA/ STANDARD)

Central Bank of Kenya (CBK) rate-setting committee voted to retain the benchmark lending rate at 11.5 per cent citing improved market expectations.

The Monetary Policy Committee (MPC), which met yesterday, said that the decision to retain the rate was arrived at in order to continue anchoring inflation expectations.

In a statement, CBK governor Patrick Njoroge (pictured) who also chairs MPC meetings noted that the committee foresees inflation pressures easing.

“The current inflation pressures are temporary and the monetary policy measures currently in place are containing any demand pressures in the economy. The CBK will continue to use the instruments at its disposal to maintain overall price stability, while ensuring steadiness in the financial sector” said Njoroge.

The Month-on-month overall inflation as noted by Kenya National Bureau of Statistics had increased to eight per cent in December up from November’s 7.3 per cent, mainly driven by food prices. Since most of the food items involved are seasonal and fast-growing, the committee said that it expects their impact on inflation to ease by April.

It also reckons that despite United States Federal Reserve raising its policy rate by 0.25 per cent and volatility experienced in other global financial markets, the shilling has remained stable since November.

MPC attributed this stability to narrowing of the current account deficit. In addition, it anticipates minimal shocks from foreign economies happenings as a result of slower global growth prospects and lower commodity prices.

“The impact on Kenya will be limited due to weak trade and financial linkages to these economies,” explained Njoroge in a statement.

Report for the third quarter of the year showed that the economy posted a 5.8 per cent growth compared to 5.2 per cent in a similar period of 2014 and the CBK Market Perception Survey of January 2016 points to improved business conditions and strong growth this year.

Other factors mentioned for the optimism include strengthened macroeconomic environment, continued public investment in infrastructure, lower oil prices, improving tourism performance, and a higher country profile.

Based on this leap of positive expectations and to also ensure market stability, the committee decided to retain the bank’s Reference Rate (KBRR) at its current level of 9.87 per cent.

The benchmark rate is important since it influences the cost of borrowing. Therefore, retaining the rate is a reprieve to borrower.

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