Bankers have urged the Central Bank of Kenya (CBK) to maintain its benchmark rate steady at 13% during the next Monetary Policy Committee meeting on August 6th.
- The apex bank raised its Central Bank Rate (CBR) to 13.0 percent in February, at the peak of inflation and a highly depreciated shilling.
- In a research note, the Kenya Bankers Association (KBA) says it expects the CBK to maintain its hawkish policy stance as effects of the recent hikes continue to flow through the economy.
- The latest inflation data by the Kenya Bureau of Statistics (KNBS) indicates a further slowdown in inflation to 4.3 percent from 4.6 percent in June 2024.
“Considering these developments, and the balance of risks, we argue that maintaining the current monetary policy stance – in keeping the CBR unchanged at 13.0 percent – would be appropriate,” KBA says in the research report.
The KBA notes that headline inflation remains anchored within the lower target range driven by lower food and pump prices, favorable weather conditions and the stronger currency.
Further, the bankers note that economic growth remains resilient with a deceleration in private sector credit. Both short term and long-term market interest rates still hold high, all reflecting tighter conditions.
Whilst the Kenyan shilling remains stable, emerging government financing risks pose headwinds to the exchange rate, hence the fall back in easing rates yet.
“Going forward, with major advanced economies becoming more cautious about the start and pace of policy easing, the effect of elevated global rates remaining higher-for-longer would continue constraining the demand for loans in the near term,” the bankers’ lobby added.
Global Developments Likely to Shape MPC’s Decision
In the major economies, the US has kept its rates steady at 5.25-5.5 percent, maintained since July 2023, with the Federal Reserve remaining keen on assessing the totality of incoming economic data until they gain greater confidence that inflation is moving towards their target sustainably.
In June, The European Central Bank made a tentative rate cut to 3.75 percent with the bank’s president holding that next decisions would be based on incoming data.
These developments are also likely to influence the MPC meeting decision. “The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate.” CBK said after its June 6th MPC meeting.
