The Central Bank of Kenya’s Monetary Policy Meeting (MPC) has resolved to retail the Central Bank Rate (CBR) at 9 percent against what most market analysts had expected.
Most economic analysts had expected the MPC to review the CBR upwards putting in consideration the immense pressure that the Kenyan shilling has been under from the US dollar.
The committee anchored its decision on the “inflation expectations that remained well anchored within the target range, and that the economy was operating close to its potential.”
Month-on-month overall inflation remained within the target range in September and October, largely due to lower food prices and muted demand-driven inflationary pressures. The inflation rate fell to 5.5 percent in October from 5.7 percent in September, following decreases in food prices which offset the increase in energy prices and transport costs following the implementation of VAT on petroleum products in September 2018.
Nonfood-non-fuel (NFNF) inflation remained below 5 percent, indicating that there were no demand pressures in the economy. Looking forward, overall inflation is expected to remain within the target range in the near term, mainly due to expected lower food prices reflecting favorable weather conditions, the decline in international oil prices, and the recent downward revision in electricity tariffs. The recent excise tax adjustment on voice calls and internet services is expected to have a marginal impact on inflation.
The foreign exchange market has remained balanced supported by a narrowing in the current account deficit to 5.3 percent in the 12 months to September 2018 compared to 6.5 percent in September 2017. The narrowing of the current account deficit is largely due to increased exports of tea and horticulture, increased diaspora remittances, strong receipts from tourism, and lower imports of food and SGR-related equipment relative to 2017. It is expected to narrow further to 5.2 percent of GDP in 2018 from 6.3 percent in 2017.
The CBK foreign exchange reserves, which currently stand at USD 8,034 million (5.3 months of import cover) continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market.