MPC Is Meeting This Wednesday: What Should Kenyans Expect?

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 26^th May 2021 to review the outcome of its previous policy decisions and recent economic developments.

The MPC will decide on the direction of the Central Bank Rate (CBR) and any other policy measure like the Cash Reserve Ratio.

In their previous meeting held on 29th March 2021, the committee maintained the CBR at 7.0 percent, citing that the accommodative policy stance adopted in March 2020, and all the other sittings since, which saw a cumulative 125 bps cut, was having the intended effects on the economy.

The MPC decision will be pegged on stable Inflation which is projected to remain within the 2.5-7.5 percent target range despite the recent increases in fuel prices.

The stable macros and limited transmission mechanism translate any additional cuts into increased economic activity growth due to underlying fundamental and structural challenges.

Any additional cuts are not likely to stimulate private sector credit growth which stood at 7.7 percent as of March 2021, due to the elevated credit risks that persist in the current environment.

The FY’2021/22 budget estimates indicate that the government will set aside 26.6 billion shillings of funds through the Post – COVID recovery strategy, of which, 8.6 billion shillings will go towards enhancing liquidity to businesses.

“We expect that these funds will be directed towards reviving the economy and as such, we believe that this will reduce pressure on the MPC to pursue additional policy measures,” said analysts from Cytonn Investments.

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 1.4% behind its prorated borrowing target of Kshs 495.6 bn having borrowed Kshs 488.6 bn. The high deficit and the lower credit rating from S&P Global to ‘B’ from ‘B+’ will mean that the government might be forced to borrow more from the domestic market which will ultimately create uncertainty in the interest rate environment.