CBK maintains benchmark rate at 8.5pc, cites risk of external shocks

The Central Bank of Kenya headquarters in Nairobi. CBK's monetary policy committee has maintained the benchmark rate at 8.5 per cent. Photo/FILE 

By David Mugwe, The EastAfrican

In Summary

• The Central Bank of Kenya (CBK) has maintained its benchmark rate at 8.5 per cent to mitigate against external events that might have an impact on the local economy in the coming months
• The Monetary Policy Committee (MPC), which is the policy setting organ of the banking regulator on Tuesday, said that the committee had decided to maintain the Central Bank Rate at the same rate it has been since May this year
• Earnings from tea and coffee exports are expected to be lower going forward following a decline of prices in international markets
• The United States government shutdown which ended on October 16 resulted in the loss of income mainly for individuals employed by the federal government and this could affect the amount of money Kenyans living and working in America send home

The Central Bank of Kenya (CBK) has maintained its benchmark rate at 8.5 per cent to mitigate against external events that might have an impact on the local economy in the coming months.

The Monetary Policy Committee (MPC), which is the policy setting organ of the banking regulator on Tuesday, said that the committee had decided to maintain the Central Bank Rate at the same rate it has been since May this year.

Njuguna Ndungu, governor, CBK, said that the committee noted that projected weak recovery in the global economy and the instability in the Middle East and North Africa continue to pose risks to the macroeconomic outlook.

“The recession in the Eurozone has slowed down export earnings from tourism while the temporary partial shutdown of the US government in October 2013 could affect Diaspora remittances from North America in the short-term,” said Prof Ndungu in a statement.

Earnings from tea and coffee exports are expected to be lower going forward following a decline of prices in international markets

.

The United States government shutdown which ended on October 16 resulted in the loss of income mainly for individuals employed by the federal government and this could affect the amount of money Kenyans living and working in America send home.

“These developments coupled with the volatile international oil prices remain a threat to price stability,” said Prof Ndungu.

Remittances are important in the Kenyan economy because they not only provide a source of foreign exchange for the country and are also used for investments in different sectors, but are also a source of sustenance for many families.

In the first nine months of this year Kenyans in the diaspora sent home $951.02 million, which is 81.22 per cent of the $1.17 billion sent in the twelve months of last year.

The amount sent by the end of September had however surpassed amounts sent in any of the full years between 2004 and 2011.

Last week, the Kenya National Bureau of Statistics said that the inflation rate fell to 8.1 per cent in October after peaking at 8.9 per cent in September following a steady rise from 4.5 per cent in May this year.

Prof Ndungu said that the exchange rate has remained stable and that the CBK level of usable foreign exchange reserves stood at $5.892 billion which is equivalent to 4.13 months of import cover at the end of October compared to $5.751 billion which was equivalent to 4.11 months of import cover at the end of August.