Kenya’s central bank kept its benchmark interest rate unchanged as it expects inflation to continue to slow.
(Bloomberg) — Kenya’s central bank kept its benchmark interest rate unchanged as it expects inflation to continue to slow.
The monetary policy committee held the rate at 10.5%, Governor Kamau Thugge said Wednesday in an emailed statement from the capital, Nairobi. That matched the median estimate of seven economists surveyed by Bloomberg.
“The impact of the tightening of monetary policy in June 2023 to anchor inflationary expectations was still transmitting in the economy,” Thugge said in a statement after chairing his second MPC meeting since becoming governor in June.
With annual in July inflation reverting to the central bank’s 2.5% to 7.5% target range three months earlier than expected, the MPC had room to hold, after lifting the benchmark rate to its highest level in seven years at an unscheduled meeting in June. It has increased rates by 350 basis points since May 2022.
Central banks in Zimbabwe and Mozambique have also kept rates unchanged in the past month, while those in Egypt and Liberia have hiked.
At the Wednesday meeting, the MPC approved interest-rate targeting to enhance policy transmission and introduced an interest-rate corridor of 250 basis points around the central bank rate.
“Henceforth, the monetary policy operations will be aimed at ensuring the interbank rate, as an operating target, closely tracks the central bank rate,” Thugge said.
Key Insights:
- Food prices are expected to ease as corn, the nation’s staple, is harvested from the breadbasket of North Rift and the Western Region in the fourth quarter.
- Sustained weakness in the shilling and the introduction of several new tax measures to finance the budget may add to price pressures in coming months. Kenya’s shilling has shed about 14% against the dollar since the beginning of the year, making it the sixth worst-performing currency in Africa, according to data compiled by Bloomberg.
- Foreign-exchange reserves stand at 7.3 billion, equivalent to four months of import cover.
- Planned early redemption of Kenya’s eurobonds due to mature in June 2024 may drain the nation’s reserves.
- Growth in private-sector credit was 12.2% in June, compared with 13.2% in May.
–With assistance from Simbarashe Gumbo and Helen Nyambura.
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