Central Bank Rate Expected to be Retained at 10 pc

Central Bank’s Monetary Policy Committee (MPC) is set to meet on Monday to review economic developments with markets expecting the Central Bank to be retained at 10 percent.

In September, the MPC lowered the CBR for the second time in 2016 by 50.0 bps to 10.0 percent on account of the persistent slowdown in private sector credit growth, which stood at 5.5 percent against the CBK target of 18.3 percent, and the fairly stable core inflation that declined from 6.4 percent in July to 6.3 percent in August 2016, indicating that inflationary pressure remains at bay.

Analysts predict that the monetary committee may not change the rate today because of the favorable environment and positive factors in the last two months.

“We are expecting the MPC to retain the CBR at 10.0% due to the macroeconomic conditions holding steady since the last meeting, and we are projecting that they will maintain the rate at 10.0% for the remaining part of the fiscal year,” Cytonn Investments note reads.

According to Cytonn Investments, the signing of the Banking (Amendment) Act, 2015, big banks have gone slow with risky lending and opted to increase their weight in government securities.

“We expect that banks   will have a preference to lending to the government, hence we do not expect         pressure on domestic government borrowing going forward. The only challenge would arise from the foreign borrowing front; however, we do not expect significant pressure to raise borrowing.”

Read: Cap on Bank Rates has Complicated the Conduct of the MPC – CBK Governor

The analysts also claim that the private sector credit growth has been on a decline for the better part of this year, touching a low of 5.4 per cent in August from 21 per cent recorded over a similar period last year.

The decline is attributed to a 30.9 per cent increase in participation in government securities, leading to crowding out of the private sector.

The annual inflation rate in Kenya rose to 6.47 percent in October of 2016, from 6.34 percent in a month earlier. It was the highest inflation rate since February, boosted by food cost.  On a monthly basis, consumer prices increased 0.62 percent following a 0.34 percent in September according to Kenyan National Bureau of Statistics.

Read: Continuous Rise in Food Prices Pushes October Inflation to 6.47pc