Kenya: Central Bank holds interest rate at 11.50% in November
November 17, 2015
At its 17 November monetary policy meeting, the Central Bank of Kenya (CBK) decided to hold the Central Bank Rate (CBR) at 11.50%, the highest its been since October 2012. The Bank hiked the CBR in both June and July against a backdrop of high inflationary pressures and the rapid depreciation of the Kenyan shilling.
In the accompanying statement, the Bank noted that financial markets had been turbulent after the last monetary policy meeting in September, but that pressures had subsided recently. Turbulence was mainly related to the government’s rising borrowing costs and the fact that Imperial Bank Limited was put under management. The CBK illustrated that liquidity conditions were very tight and that short-term interest rates were fairly high in September and October, but that conditions improved notably and interest rates fell in November. According to the Bank, pressures on state borrowing moderated, partly thanks to the issuance of a syndicated loan in November.
According to CBK, inflation remained within the target range in October, despite a notable increase, and core inflation receded, pointing to fading demand pressure. The Bank pointed out that the Kenyan shilling has been fairly stable since September, sustained by the Bank’s efforts, and that the current account deficit had decreased largely due to lower imports. Moreover, according to the CBK, its purchase of foreign exchange helped to replenish the country’s foreign currency reserves from 3.9 months of import cover in September to 4.3 months of import cover in November. The Bank sees that these reserves, together with the IMF’s Precautionary Arrangement, constitute a suitable cushion against shocks. As for economic growth and inflation prospects, the Bank noted that its market perception survey of private enterprises points to robust growth this year, an acceleration in 2016 and receding inflationary pressures.