CBK Retains The Central Bank Rate Amid Inflation Spike Fears

The Central Bank of Kenya (CBK) has retained the Central Bank Rate (CBR) at 9 percent amid fears that the inflation for the month of September might move through the roof.

The retaining of the rate by CBK comes against a backdrop of macroeconomic stability, sustained optimism on the economic growth prospects as well as increased uncertainties in the global financial markets.

There are fears that the inflation for the month of September will rise above expectations following the implementation of the 8 percent Value Added Tax (VAT) on petroleum products plus the 18 shillings duty for every liter of kerosene.

“There is need to monitor the second-round inflammatory effects arising from the VAT on petroleum products, and any preserve response to its previous response,” said the Committee in a statement.

According to MPC, the month-to-month overall inflation for the month of July and August remained within the range of the Committee, falling to 4 percent in August from 4.4 percent in July.

There was relatively low food prices during the month of August despite with Kenya National Bureau of Statistics noting the increase in the prices of charcoal following the ban on logging.

Overall inflation for the month of September is expected to rise in the near term following the implementation of VAT on petroleum products that will see prices of other products being affected down the value-chain.

The MPC noted that the current foreign exchange for Kenya has remained stable supported by continued narrowing in the current account deficit and balanced flows.

The current account deficit narrowed to 5.3 percent in the 12 months to July from 5.6 percent in June. It is expected to narrow to 5.4 percent of the Gross Domestic Product (GDP) for 2018 from 6.7 percent of the GDP recorded in 2017.

In 12 months to August 2018, the private sector is said to have grown by 4.3 percent. The manufacturing, building and construction, consumer durables, and trade sectors grew by 14.9, 11.5, and 7.0 percent respectively.