Kenya's Central Bank maintains policy rate at 11.5pc

CBK voted to retain its policy rate at 11.5 per cent. PHOTO | FILE 

By JAMES ANYANZWA, janyanzwa@ke.nationmedia.com

In Summary

• CBK said the monetary policy measures already in place are containing the demand side pressures on the Kenyan economy.

Kenya’s Central Bank (CBK) voted Wednesday to retain its policy rate at 11.5 per cent despite an increase in inflation figures in the East African nation beyond the government’s target of 7.5 per cent for the current (2015/2016) financial year.

The Bank also retained the lenders’ newly introduced uniform base lending rate — the Kenya Bank’s Reference Rate (KBRR) — at 9.87 per cent in a move aimed at enhancing spending and sustaining growth momentum in an economy that expanded by 5.8 per cent in the third quarter of 2015 compared with 5.2 per cent in a similar period in 2014.

The Bank’s monetary policy committee (MPC) said the current inflation pressures are ‘temporary’ and that the monetary policy measures already in place are containing the demand side pressures on the economy.

Kenya’s overall month-on-month inflation increased to 8.01 per cent last month, higher than the 7.5 per cent target rate preferred by the government.

The increase in cost of goods and services, according to CBK, was largely driven by food prices which included Irish potatoes, tomatoes, kale (sukuma wiki), carrots, cabbages, onions, beef with bones and avocadoes.

The items contributed 2.3 percentage points to the overall inflation and 6.3 percentage points to food inflation in December 2015.

“Many of these items are seasonal and fast-growing and their impact on inflation is expected to dissipate by April,” said Dr Patrick Njoroge, the banking regulator’s governor.

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Also contributing to inflation was the new excise tax imposed on alcoholic beverages and tobacco products introduced in early December of 2015.

According to CBK, liquidity in the banking system has improved since November 2015, reducing pressure on short term rates while the foreign exchange market has remained stable in a similar period despite rise in US interest rates, impact of the slowdown of China and volatility in other global financial markets.

READ: Africa's exports to China plummet nearly 40pc in 2015

The country’s foreign exchange reserves stand at $7.02 billion (equivalent to 4.5 months of import cover).

Global economic growth in 2016 is expected to vary across the advanced and emerging economies impacted by slower growth prospects in China and other emerging markets, lower commodity prices, as well as the possibility of tight financing conditions following commencement of the tightening of US monetary policy.