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Kenya Central Bank maintains Interest rates to anchor inflation expectations

4th March 2014

Kenya's central bank maintained its Central Bank Rate (CBR) at 8.50 percent to continue anchoring inflation expectations as inflation remains in the upper bound of the bank's medium term target of 5.0 percent despite its recent decline.
    However, the Central Bank of Kenya (CBK), which has held its rate steady since May 2013 after cutting it by 250 basis points in the first months of the year, said overall inflation eased to 6.86 percent in February from January's 7.21 percent while non-food, non-fuel inflation (NFNF) had risen slightly to 4.93 percent from 4.83 percent, indicating that its policy stance had supported a stable inflation rate and that private sector credit growth was non-inflationary.
    The CBK added that both 1-month and 3-month inflation measures had stabilized in February, "indicating an easing of underlying inflationary pressure."
    The central bank targets inflation in a range of 2.5 percentage points around a 5 percent midpoint. Inflation remained within the CBK's range last year apart from September and October when inflation exceeded the upper limit following the imposition of a 16 percent valued-added-tax on some goods.
    Kenya's shilling has also been stable in the last month, fluctuating within a narrower range of 86.06 to 86.58 to the U.S. dollar compared with a range of 85.46 to 86.96 in January.
    The central bank said its level of foreign reserves had risen to US$ 6.258 billion at the end of February, the equivalent of 4.38 months of imports, from $6.165 billion end December, mainly due to commercial banks selling foreign exchange to the CBK.
    It added that Kenya's cumulative current account deficit had improved to 8.09 percent of Gross Domestic Product by December 2013, down from a deficit of 10.45 percent in 2012, while the government's borrowing program for fiscal 2013/14 was consistent with monetary policy objectives. This means the  the private sector will not be crowded out, an effect that could jeopardize the expected increase in private investment.
    Kenya's banking sector also remains solvent, according to the latest stress tests, with annual growth in private sector credit of 20.47 percent in January, up from 20.08 percent in December, and confidence in the economy remains strong with the central bank's market perception survey from February showing that the private sector expects inflation and the exchange rate to remain stable for the remainder of this year and sustained optimism for strong economic growth in 2014.
    The central bank also noted that Fitch Ratings had affirmed Kenya's long-term foreign and local currency rating at B+ and BB-, respectively, with a stable outlook, while activity on the Nairobi stock exchange had been buoyant and diaspora remittances continued to average over $110 million a month between July 2013 and January 2014.
    Kenya's GDP expanded by 1.6 percent in the third calendar quarter of 2013 from the second quarter for annual growth of 4.4 percent, up from 4.3 percent in the second quarter


Kenya maintains rate to anchor inflation expectations - Central Bank News

Kenya Central Bank holds rate, sees risks to economic outlook

Kenya's central bank held its central bank rate (CBR) steady at 8.50 percent, with no demand-driven inflation pressures though there are risks to the economic outlook from global events along with the high current account deficit that remain a threat to macroeconomic stability.

    In addition, the Central Bank of Kenya (CBK) said the implementation of new VAT measures from this month will contribute to a short-term increase in inflation but the effects will be mild.
    The CBK, which has cut rates by 250 basis points this year after cutting by 700 points in 2012, said a rise in inflation in August to 6.67 percent from 6.02 percent in July was largely due to an increase in fuel and some food prices along with the base effect from notable declines in 2012.
    Despite the rise, inflation is within the government's target band of 5.0 percent, plus/minus 2.5 percentage points. Non-food-non-fuel inflation, which measures the impact of monetary policy, eased to 3.86 percent in August from 4.04 percent, reflecting reduced demand pressures in the economy.
    "These developments, coupled with non-inflationary private sector credit growth continued to support a stable short-term outlook for inflation," the CBK said.

    The exchange rate of Kenya's shilling also remained stable since the bank's last meeting in July with the level of usable foreign exchange reserves at US$ 5.75 billion at the end of August, the equivalent of 4.1 months of import cover.
    The exchange rate fluctuated within a narrow range of 87.37 shilling to 87.70 to the U.S. dollar in July and ongoing initiatives by the government to attract foreign investors and expand the trade markets would support exchange rate stability through increased foreign exchange earnings in the future, the CBK said.
    Kenya's current account deficit has kept the currency under pressure but the central bank has argued that a weaker shilling can help boost the economy's international competitiveness.

    
Kenya holds rate, sees risks to economic outlook - Central Bank News

for more details log on to Central Bank of Kenya website : http://www.centralbank.go.ke/

Kenya Central Bank holds rate steady

Kenya's central bank held its Central Bank Rate steady at 8.50 percent, saying last year's rate cuts still need time to work their way through the economy and first quarter growth was strong while inflation remains within the government's target and the exchange rate has remained stable.
    But the Central Bank of Kenya (CBK), which cut its rate by 700 basis points in 2012 and 150 points in January, said the high current account deficit and instability in the Middle East could threaten price stability by affecting the price of oil and tea exports, with implications from Kenya's balance of payments and inflation.
    Kenya's Gross Domestic Product expanded by 0.5 percent in the first quarter from the previous quarter for annual growth of 5.2 percent, helped by a 8.3 percent rise in agricultural output.
    The inflation rate rose slightly to 4.91 percent in June from 4.05 percent in May, within the government's medium-term target of 5.0 percent, plus/minus 2.5 percentage points, and the CBK said there were no suggestions of "immediate underlying inflation pressure" and the decline in oil prices and non-inflationary credit growth supported the short-term outlook for inflation.

Kenya holds rate steady, past rate cuts still working - Central Bank News

for more details log on to Bank of Kenya website : http://www.centralbank.go.ke/