CBK Holds Key Lending Rate at 10pc due to declining Inflation

The maximum cost of loans remains unchanged after the Central Bank of Kenya (CBK) on Thursday  retained the base lending rate at 10.0 percent saying inflationary pressures in the economy were muted, and inflation was expected to continue to decline in the short term.

“The Committee noted that despite the effects of the drought experienced in the first half of 2017, and the prolonged elections in the second half of the year, economic growth has remained resilient,” said Dr. Patrick Njoroge, Chair of the Monetary Policy Committee.

“Despite the improved outlook for global growth, uncertainties remain particularly with regard to U.S. economic policies, the post-Brexit resolution, and the pace of normalization of monetary policies in advanced economies,” he added.

At the meeting, it was noted that Month-on-month fell to 5.7 percent in October 2017 from 7.1 percent in September 2017, remaining within the Government target range reflecting lower food prices, particularly for cabbages and Irish potatoes.

“Non-food-non-fuel (NFNF) inflation remained below 5 percent, demonstrating that demand pressures are muted. Despite an increase in international oil prices which has exerted upward pressure on fuel prices, improved weather conditions and the extension of the maize subsidy are expected to continue supporting a further lowering in food prices and a decline in overall inflation in the near term.

Njoroge said the foreign exchange market has remained relatively stable supported by strong diaspora remittances, resilient tea and horticultural exports, and the continued recovery in tourism.

“However, the 12-month current account deficit widened slightly to 6.5 percent of GDP in September 2017 from 6.4 percent of GDP in July 2017. This was largely due to higher international oil prices, and continued import of food to mitigate the adverse effects of the drought. The current account deficit is expected to narrow to 6.2 percent of GDP by December 2017 as a result of a slowdown in SGR-related imports, and improved weather conditions which will support food production and agricultural exports.”