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MPC Meets on Wednesday: What Should Kenyans Expect?

BY Soko Directory Team · March 25, 2019 06:03 am

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 27th March 2019, to review the prevailing macroeconomic conditions and decide on the direction of the Central Bank Rate (CBR).

In their previous meeting held on 28th January 2019, the MPC maintained the CBR at 9.0%, citing that the economy was operating close to it’s potential and inflation expectations remained anchored within the target range, thus the prevailing monetary policy stance remained appropriate.

In the last review, inflation expectations, which have remained well anchored within the target range, declining to 4.7 percent in January 2019, from 5.7 percent recorded in December 2018.

The declining inflation then was mainly driven by a 1.4 percent decline in the transport index attributable to a decline in pump prices of petrol and diesel.

There was also an increased private sector optimism as per the MPC Private Sector Market Perception Survey conducted in January 2019, which indicated that the private sector was optimistic about local economic prospects.

The private sector expects stronger economic growth in 2019, driven by a better investment climate, continued infrastructure development, expectations of increased agricultural production, the continued decline in international oil prices, and strong tourism performance.

The Monetary Policy Committee also noted that the current account deficit had narrowed to 5.1 percent in the 12-months to November 2018, compared to 6.5 percent in November 2017, supported by strong growth of agricultural exports particularly tea and horticulture, improved diaspora remittances, and tourism receipts.

The decline was also partly supported by higher tea and horticultural exports coupled with the slower growth in imports due to lower food and SGR–related equipment imports and declining international oil prices.

“We believe that the MPC will maintain the current policy stance, given the macro-economic environment is relatively stable. We, therefore, expect the MPC to hold the CBR at 9.0 percent,” said experts from Cytonn.

This review by MPC will be anchored on expectations of muted inflationary pressure in 2019, anchored by the declining food prices going forward with the expectations of long rains starting in late March as well as lower global fuel prices.

The stability of the Kenyan Shilling, having already gained by 1.0 percent YTD in 2019 and recording a 4-year high of 99.7 shillings against the dollar will inform the decision by MPC.

Considering the government is currently behind its domestic borrowing schedule having borrowed 220.4 billion shillings against a pro-rated target of 226.6 billion shillings, “we believe the MPC will maintain the CBR at the current rate with a bias to further easing in order to continue accessing domestic debt at cheaper rates. This, however, might have adverse effects of further crowding out of the private sector.”

The Federal Reserve Bank

The Federal Reserve Bank (Fed) of the U.S, through its Federal Open Market Committee (FOMC), has maintained its benchmark policy rate within a band of 2.25 – 2.50 percent during its March meeting. The Fed also discarded earlier promises it had made on further gradual rate increases. The decision rides on the back of fears of an economic slowdown, highlighted by the Fed.

This slowdown has been attributed to the growing uncertainty around trade relations between the US and China, further triggering falling factory output. In addition, the Fed also highlighted that beginning May it would slow down the monthly reduction of its Treasury bonds holdings to USD 15.0 billion from the previous USD 30.0 billion, a move aimed at adjusting to the weaker global economic growth.

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