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

Israel Central Bank holds rate, less worried over further slowdown

Israel's central bank held its policy rate steady at 1.25 percent, saying economic activity has continued at its recent pace, making it less concerned over a further slowdown but inflation expectations are below the midpoint of the bank's target range.
    The Bank of Israel (BOI), which cut rates twice in May to weaken the strong shekel, noted the currency's effective exchange rate had strengthened by 0.9 percent this month against a background of continued expansionary monetary policies in major economies.
    The cost of homes, one of the BOI's concerns in recent months, eased by 0.1 percent in April-May and previous months' data have been revised down but "it is too early to determine if this represents a change in trend," the bank said.
     Israel's inflation rate rose to 2.0 percent in June from 0.9 percent, the highest rate in 10 months, mainly due to a rise in VAT, along with higher prices for clothing, footwear, fuel and electricity.
    Inflation expectations for the next 12 months by private forecasters eased to 1.7 percent after the latest inflation data while forecasts for the BOI's policy rate one year from now remained stable at 1.1-1.2 percent on average. The BOI targets inflation of 1-3 percent.
    Economic activity in the second quarter is expected to be similar to the first quarter, though manufacturing exports continue to stand still, the BOI said.

    "Indicators which became available in the past month point to continued growth of economic activity at the relatively moderate pace of the past two years, which eased concerns of an additional slowdown in growth," the bank said.   
    The third estimate of first quarter Gross Domestic Product growth was revised upwards to 2.9 percent, another factor that eased some of the BOI's concerns. In the fourth quarter, GDP rose by an annual 2.6 percent.
     In March the BOI said economic activity was continuing to improve but it was still too early to tell if the economy had turned the corner.
    "The Bank of Israel will continue to monitor developments in the Israeli and global economies and financial markets, particularly in light of the continuing uncertainty in the global economy," it said, adding it would use the tools available to achieve its objectives and also keep a "close watch on developments in the asset markets, including the housing market

Israel holds rate, less worried over further slowdown - Central Bank News

for more details log on to Bank of Israel website : http://www.bankisrael.gov.il/en/Pages/Default.aspx  

Sri Lanka Central Bank holds rate steady, inflation seen in single digits

 Sri Lanka's central bank maintained its benchmark repurchase rate at 7.0 percent, saying inflation is expected to remain at single digit levels for the remainder of the year, apart from minimal seasonal variations, due to improved inflation expectations, supply side improvements and an absence of demand driven pressures.
  
  The Central Bank of Sri Lanka, which cut rates in May and December, also said the recent 200 basis point cut in the Statutory Reserve Ratio (SRR) had contributed to the monetary policy relaxation process and provided financial markets with further stimulus to support economic growth, leading to a downward momentum in Treasury yields and lower short term and deposit rates at commercial banks.
    Sri Lanka's trade deficit has also narrowed but the central bank added that "weaker than expected economic performance in advanced economies may yet prove to be a dampener in revitalising external demand and would need to be watched carefully in the months ahead."
    Like other emerging markets, Sri Lanka's rupee weakened in May, though less than many other currencies. It was quoted at 131.7 to the U.S. dollar today, down 3 percent this year. The central bank made no reference to foreign exchange in its statement.

    Credit to the Sri Lanka's private sector has also been expanding following the central bank's easing, with credit up by 18.3 billion rupees in May from 7.6 billion in the previous month while credit to the government decelerated, as expected, helping release funds from the banking sector to provide additional stimulus to the private sector.
    The central bank's decision was widely expected following an interview by the bank's governor last week in which he said that monetary policy was likely on hold until September or October when the bank would "be a little more inclined to relax further" if inflation continues to fall.
    Last month the central bank also said it expected inflation to remain in single digits due to supply side improvements and the absence of demand driven pressures. This month it added the reference to inflation expectations.
    In June Sri Lanka's headline inflation rate eased to 6.8 percent from 7.3 percent and core inflation fell to 4.3 percent, the lowest since its inception.
    The central bank is aiming for inflation to ease to 5.0-5.5 percent by the end of the year and average 7 percent for the year.
    Sri Lanka's Gross Domestic Product grew by an annual 6.0 percent in the first quarter, down from 6.3 percent in the previous quarter and the central bank is targeting growth of 7.5 percent this year, up from 6.4 percent in 2012

Sri Lanka holds rate steady, inflation seen in single digits - Central Bank News

for more details log on to Central Bank of Sri Lanka website : http://www.cbsl.gov.lk/