Central Bank Maintains Base Lending Rate at 11.5 Percent

The Central Bank of Kenya (CBK) maintained the base lending rate at 11.5 per cent in its Monetary Policy Committee (MPC) meeting on Monday following the fall in inflation last month and reduced volatility in the currency market.

CBK governor Patrick Njoroge said in a statement that, “The measures currently in place have continued to moderate inflation expectations. The MPC decided to retain the CBR at its current level of 11.5 per cent to continue to anchor inflation expectations and enhance the credibility of its policy stance.”

The Committee cited that the global economic outlook had worsened since January 2016 with weaker growth prospects, increased volatility in the financial markets and heightened uncertainties in the emerging markets and advance economies.
“However, the impact of these developments on Kenya is expected to be minimal due to the diversification of its export products and markets and stable financial linkages.”

Last week Cytonn Investments urged the Monetary Policy Committee to maintain the rate the way it was. They said ‘the decisions of last week’s MPC meeting were going to be key in shaping the monetary policy environment for the remaining part of the fiscal year 2015/16’ with an aim of helping:

• the effects of lower interest rates, a stable shilling and low inflationary pressures to consolidate, and
• the economy to fully be anchored against any shocks in the near term,

Driven by the possibilities of:

• A spike in inflation as a result of introduction of excise duty tax,
• VAT on petroleum products and the possible increase in global oil prices.

 Cytonn Investments further said that in maintaining the rate, the MPC would:

• avoid runaway inflation,
• currency fluctuations as we head into the dividend payment season by most corporates, which may result in an increase in dollar demand by foreign investors, and,
• finance the Kshs. 200 Bn gap in foreign borrowing from the domestic market, which may lead to a spike in interest rates.