MPC Might Retain CBR At 7% On January 26

The Monetary Policy Committee (MPC) is set to meet on Wednesday, 26^th January 2022, to review the outcome of its previous policy decisions and recent economic developments, and to decide on the direction of the Central Bank Rate (CBR).

“We expect the MPC to maintain the Central Bank Rate (CBR) at 7.00 percent,” said Cytonn in their latest report.

According to Cytonn, the MPC might take a wait-and-see approach as they continue to monitor the country’s economic recovery, with an emphasis on the need to spur economic growth and not curtail the post-pandemic recovery.

Kenya’s economy recorded a 9.3 percent growth in Q3’2021, up from the 2.1% contraction recorded in Q3’2020 but slightly lower than the 10.1% growth recorded in Q2’2021.

“We believe that despite this recovery, risks that abound the economic recovery are the emergence of the new variants and 2022 being an election year,” added Cytonn.

Historically, election years have seen slower economic growth due to political instability. As such, we believe that the MPC will keep monitoring the macro-economic indicators before pursuing any additional policy measures.

At the same time, inflation is expected to remain stable and within the government’s target range of 2.5 -7.5 percent on account of the stable fuel prices.

December inflation eased to 5.7 percent, from 5.8 percent recorded in November, supported by the stability in fuel which has remained unchanged since October 2021 due to the fuel subsidies under the Petroleum Development fund.

However, Global fuel prices have continued to increase, hitting seven-year highs on the back of increased demand and persisting supply chain constraints.

“We believe that the fuel subsidy program by the National Treasury stands at risk of being depleted and is unsustainable, due to the continuous increase in the average landed costs of fuel. We anticipate inflation pressures to remain elevated in the short term driven by the rising food prices and the rise in global fuel prices.”