The Monetary Policy Committee has lowered the Central Bank Rate (CBR) from 9.50 percent to 9 percent, getting most financial analysts who had predicted its withholding off-guard.
According to MPC, the inflation expectations were “well anchored within the target range and that the economic growth prospects were improving.”
The MPC noted that the economic output was below its potential level and that “there was room for further accommodative monetary policy.”
“While noting the risk of perverse outcomes, the Committee decided to lower the Central Bank Rate (CBR) to 9.00 percent from 9.50 percent,” read a statement from MPC.
The committee has also promised to closely monitor the new change in its policy stance as well as following up on other developments in the domestic and global economy.
What led to the lowering of the rate?
According to MPC, month-on-month overall inflation remained within their target range for the month of May and June due to lower food prices. The inflation rate was 4.3 percent in June and 4.0 percent in May, a 0.3 percent increase.
The foreign exchange market, the committee noted that it remains stable as a result of balanced inflows and outflows as well as a continued narrowing in the current deficit. The current account deficit narrowed to 5.8 percent in 12 months to June 2018 from 6.3 percent in March 2018. The deficit is expected to narrow further to 5.4 percent of the GDP in 2018.
The CBR was also lowered to the account that the Central Bank of Kenya foreign exchange reserves remain high, and continue to provide an adequate buffer against short-term shocks in the foreign exchange market. Currently, they stand at USD 8,834 million, an equivalent to 5.9 months of import cover.
According to MPC, the private sector grew by 4.3 percent in the 12 months to June 2018, compared to 2.8 percent in April 2018.