Monetary Policy Committee Meeting This Wednesday

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 27^th January 2021, to review the performance of the previous policy decisions undertaken in 2020 and what the next steps would be on matters monetary policy.

The current Central Bank Rate (CBR) is at 7.00 percent and the MPC is expected to retain it putting in mind the prevailing economic situation both locally and globally.

The CBR will be determined by the projection of stable inflation which is projected to remain within the 2.5- 7.5 percent on account of stable; food and fuel prices.

There is massive support for the shilling as the fundamentals supports a more stable shilling i.e. the current account position has been improving despite the decline in the forex reserve. The most recent reprieve from the debt servicing is meant to support the shilling.

The rate will be retained with the need to support the economy by continuously pumping money into the economy. The current macro and business environment fundamentals might constrain the transmission of further accommodative cuts, despite the need to stimulate economic growth.

Rates in the fixed income market have remained relatively stable due to the high liquidity in the money markets, coupled with the discipline by the Central Bank as they reject expensive bids.

The government is 22.9 percent ahead of its prorated borrowing target of 252.5 billion shillings having borrowed 321.8 billion shillings.

“In our view, due to the current subdued economic performance brought about by the effects of the COVID-19 pandemic, the government will record a shortfall in revenue collection with the target having been set at Kshs 1.9 tn for FY’2020/2021 thus leading to a larger budget deficit than the projected 7.5% of GDP, ultimately creating uncertainty in the interest rate environment as additional borrowing from the domestic market may be required to plug the deficit,” said Cytonn.

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