The Central Bank of Kenya has maintained the benchmark interest rate at 9.5% during its May 29th, 2023 monetary policy meeting. The bank cited the ongoing transmission effects of the previous tightening of monetary policy in March 2023, which aimed to anchor inflationary expectations in the economy. This move is further supported by recent government measures allowing duty-free imports on specific food items, particularly sugar, to alleviate domestic inflationary pressures and moderate prices.
Although Kenya’s annual inflation rate fell to a ten-month low of 7.9% in April 2023, primarily due to a slowdown in food prices, it remains above the central bank’s upper limit target of 7.5%. The bank expects food inflation to moderate in the coming months due to favorable weather conditions and lower global food prices. However, recent increases in electricity prices and the removal of the fuel subsidy are expected to exert moderate upward pressure on overall inflation.
Addressing the global economic outlook, the central bank acknowledges ongoing uncertainties, including concerns about financial sector stability in advanced economies and geopolitical tensions, notably the ongoing war in Ukraine. However, commodity prices, particularly oil and food, have continued to ease in global markets.
The Central Bank of Kenya also acknowledged the progress in implementing the government’s fiscal measures, including tax revenue collection, and the proposed budget for the fiscal year 2023/24, which aims to reinforce fiscal consolidation. Additionally, the disbursement of external inflows, such as the World Bank Development Policy Operation (DPO), is expected to improve liquidity conditions in the economy.