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Monetary Policy Committee To Set CBR At 8.5% – Genghis Capital

BY Soko Directory Team · November 20, 2019 10:11 am

The CBK Monetary Policy Committee (MPC) is set to meet on Monday 25th November 2019 to determine the course of the key policy rate, the Central Bank Rate (CBR).

The committee last met on September 23rd, 2019 and maintained the CBR at 9.0 percent, citing a stable macroeconomic environment.

Further, the committee noted that the prospective tightening of fiscal policy on the domestic front alluded to an accommodative monetary stance in the near term.

“We expect the MPC to cut the CBR by 50bps to 8.5 percent in their November meeting on the back of:

  • Stable inflation, occasioned by disinflation in the Jul-Sep period
  • An appreciating currency, which has gained 1.9 percent against the dollar since the last meeting
  • Repeal of the interest rate caps, which should serve to enhance the scope of monetary policy
  • The accommodative policy stance in the global markets on the back of a slowdown in global growth and trade tensions.

According to experts from Genghis Capital, as Kenyans head into November MPC, near-term inflation is expected to be contained within target levels.

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On the global front, the Organization of the Petroleum Exporting Countries (OPEC) is meeting next month, with the current production cuts set to expire in March 2020 and the group is widely expected to extend the cut throughout 2020 and support global oil prices, on the back of an expansion in non-OPEC supply.

“Additionally, the slowdown in global growth this year is expected to suppress demand. Overall, we expect inflation to oscillate within the government target range, with food and fuel pressures contained,” said Genghis Capital.

According to Genghis, the Kenyan shilling gain against the dollar is expected to strengthen in the near term. The local currency has appreciated 1.9 percent against the dollar since the last MPC meeting on the back of diaspora remittances and inflows from foreign funds, following the repeal of the interest rate caps.

The heightened liquidity in the market continues to persist with the Central Bank quite active in the repo market over the same period.

Forex reserves have declined by USD 0.2Bn to USD 8.9Bn (5.59 months of import cover) since the September MPC meeting which we primarily attribute to Eurobond interest payments.

Stripping out interest payments, forex reserves appear relatively stable in the 2 months prior to this meeting, with marginal deterioration over the period. With the recent appreciation of the currency and the expectation of improved diaspora remittances heading to the close of the year, the reserves are expected to remain robust on the back of a stronger Shilling.

The forex reserves present an adequate cushion for the local unit in the short term and have been relatively sturdy as highlighted by the normalized reserves.

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