MPC To Meet On Wednesday; What Should Kenyans Expect?

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 29^th April 2020, to review the outcome of its previous policy decisions and recent economic developments, and to make a decision on the direction of the Central Bank Rate (CBR).

In their previous meeting held on 23^rd March 2020, the committee decided to reconvene within a month for an early assessment of the impact of these measures and the evolution of the COVID-19 pandemic.

In the last sitting, they lowered the CBR by 100 bps to 7.25 percent from 8.25 percent and reduced the Cash Reserve Requirement (CRR) to 4.25 percent from 5.25 percent citing that the Coronavirus pandemic was expected to adversely affect economic growth.

“During the meeting on Wednesday, 29^th April 2020, we expect the MPC to reduce the Central Bank Rate (CBR) by 25bps to 7.00 percent from 7.25 percent,” said analysts from Cytonn Investments.

The Cost-Push Inflation continues to be a threat to the economy due to the locust invasion which has plagued the country since the end of 2019.

Experts have warned that the country is likely to experience a second wave of locust invasion and this may greatly affect the agricultural sector, causing a further increase in food prices which has a new weighting of 32.9 percent in the Consumer Price Index (CPI).

Inflation may, however, be slowed down by the decline in oil prices across the globe due to a decline in demand. “We, therefore, expect a decline in the transport index, which has a new weighting of 9.7% in the total consumer price index (CPI), due to the decrease in petrol and diesel prices.”

The instability of the Kenyan Shilling having already lost by 5.6 percent YTD in 2020 reflecting a less stable economic environment will influence the decision by MPC.

The country is experiencing high dollar demand from foreigners exiting the market as they direct their funds to safer havens as well as merchandise, and energy sector importers beefing up their hard currency positions amid a slowdown in foreign dollar currency inflows from the diaspora.

The MPC may also cut the rate further to continue encouraging financial institutions to lend money to the private sector as most businesses may need to take up loans for business continuity purposes due to subdued revenues.