CBK expected to hold interest rates at Monday’s review

The Central Bank Monetary Policy Committee (MPC) is expected to hold key interest rates at its monetary policy review at 10 percent.

“With inflation having eased to 8.0 percent from 9.2 percent since the last meeting and the currency having appreciated by 1.0 percent over the same period of time, we believe that the MPC should adopt a wait and see approach, given the macro-economic environment is relatively steady and improving, and we therefore expect the MPC to hold the CBR at 10.0 percent,” says Cytonn Investments.

However, they note that, “The key risk lies in the depressed economic growth that came in at 4.7 percent in Q1’2017, lower than the 5.8 percent in 2016, coupled with the subdued private sector credit growth, that came in at 2.1 percent in May, from 3.3 percent in March, and this trend may well impact adversely on economic growth, which we believe will be a key driver in future monetary policy decisions.”

“The benchmark rate has been maintained at 10.0 percent since September last year and predictably, will be retained in the upcoming meet,” according to Genghis Capital Analysts.

For Genghis Capital, because the policy stance has remained static, it brings to the fore the interest capping law.

In the course of the week, open mouth operations by the CBK Governor reveals the much-anticipated survey conducted by the apex bank and Treasury on the impact of the law on credit has been negative. This was followed by sentiments proposing market determined
but disciplined interest rate regime within the banking sector; a signal CBK recommends repeal/review of the law. “We view the interest rate capping as the major block to the bank’s policy framework and thus we expect retention of the CBR in the Monday MPC meeting
albeit evidence suggesting policy response.”



On Friday, The Kenyan shilling closed at 102.80/103.00 per dollar.

In their previous meeting, held in July 2017, the MPC maintained the CBR at 10.0 percent attributed to a relatively stable forex market, a narrower current account deficit and exchange reserves that continued to cushion the economy from unforeseen shocks.

Reuters reported that the government has cut its 2017 economic growth forecast to 5.5 percent from an initial 5.9 percent according to Kamau Thuge, the principal secretary.

On the other hand, Kenya’s Private sector credit growth has remained low, reaching 2.1 percent in the month of May, and is projected to remain low as the interest rate cap has made it difficult for banks to lend to risky borrowers, who have been priced out of funding.

The sector experienced its ‘worst deterioration in the health’ driven by sharp falls in output, new orders and stocks of purchases in August according to the Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) survey.