The Central Bank of Kenya has retained its benchmark lending rate at 9.0 per cent in an effort to caution against inflation following the implementation of the 8 per cent Value added tax on all petroleum products.
The monetary policy committee says the decrease in food prices had offset the increase in fuel prices and seen inflation rate dropped 0.4 per cent in the month of July down from the 4.4 per cent in the previous month.
Adding that non-food-non-fuel (NFNF) inflation remained below 5 per cent, indicating that demand-driven inflationary pressures remain muted.
However, inflation is expected to rise in the near term, following the implementation of 8 per cent VAT on all petroleum products in September 2018 and its impact on other prices as well as international oil prices.
‘’The CBK foreign exchange reserves, which currently stand at USD8,507 million (5.6 months of import cover) continue to provide adequate cover, and a buffer against short-term shocks in the foreign exchange market.’’ The committee said.
Adding that a Private Sector Market Perception Survey conducted in September 2018 showed that inflation expectations were well anchored within the target range in the near term on account of lower food prices.
‘’ The Survey indicated sustained optimism for stronger growth in 2018 and an improved business environment, ’’they said.
The committee also says that credit grew uptake grew by 4.3 per cent in the 12 months ending in August, notably in the manufacturing, building and construction, consumer durables, and trade sectors at 13.3 per cent, 14.9 per cent, 11.5 per cent, and 7.0 per cent, respectively.
Moreover, the bank remains optimistic with regards to stability in the banking sector which was further enhanced by the transfer of assets and liabilities from Chase Bank Limited (In Receivership) to SBM Kenya.