Kenya’s central bank on Monday unexpectedly cut its benchmark lending rate for the first time since April 2013 by 100 basis points (1%) to 10.5% from the previous 11.50%, saying inflation was expected to decline further adding that it will use instruments at its disposal to maintain overall price and financial sector stability.
MPC’s Decision was a surprise to the market as most analysts polled prior to the meeting thought the committee would either cut the CBR by 0.5% or just leave it at 11.50%.
“Overall inflation is expected to decline and remain within the Government target range in the short-term,” the Monetary Policy Committee said in a statement.
“The foreign exchange market has remained stable, supported by a narrower current account deficit due to lower oil imports, improved earnings from tea and horticulture exports, and strong diaspora remittances….Foreign exchange reserves of the CBK currently stand at USD7,688.3 million (equivalent to 5.0 months of import cover) up from USD7,377.2 million (equivalent to 4.7 months of import cover) at the end of March 2016. These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF) will continue to provide adequate buffers against short-term shocks.”
MPC On Banking Sector
The CBK also noted that the banking sector was resilient and had begun to stabilise following the successful and quick reopening of Chase Bank adding that its enforcement of existing regulations particularly with respect to the classification of loans, has strengthened and increased transparency of the banking sector.
Effects of Brexit & Fed’s Rate Hike
The CBK also noted that uncertainties in the global financial markets have increased due to risks posed by, among other factors,China’s slow growth, the timing of the U.S. Fed’s next increase in interest rates, and the outcome of the Brexit.
Press Briefing
The CBK governor Dr Patrick Njoroge is on Tuesday 24th May 2016 expected to hold a press briefing to explain the monetary policy committee decision to cut cut the CBR. The governor will also be expected to address issues affecting the banking industry especially its stability and the way forward collapsed lenders. As usual, The Kenyan Wallstreet will be there to give you the live updates via our social Media platforms.
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