Kenya: Central Bank holds interest rate at multi-year high
September 22, 2015
At its 22 September monetary policy meeting, the Central Bank of Kenya (CBK) decided to hold the Central Bank Rate (CBR) at 11.50%, the highest level since October 2012. The Bank had hiked the CBR in June and July, against a backdrop of high inflationary pressures and the rapid weakening in the value of the Kenyan shilling.
In the accompanying statement, the Bank noted that inflation eased in August largely on the back of lower food prices and weakening demand pressures that partially offset the pass-through effects of the weak Kenyan shilling. The Bank noted that foreign exchange markets were volatile in recent months, largely due to the devaluation of the Chinese yuan and high demand for the USD. Despite this volatility, the Bank helped stabilize the shilling through tight liquidity conditions and inventions in the foreign-exchange market. The Bank added that foreign exchange reserves combined with the Precautionary Arrangements with the International Monetary Fund (IMF) are at an adequate level to safeguard against short-term shocks. Moreover, Kenya received positive feedback from the IMF following the country’s first review in September.
In conclusion, the Central Bank noted that liquidity conditions remain tight and short-term interest rates have increased. The Bank emphasized that while risks remain, the banking sector is resilient and that the CBK is closely monitoring recent developments. Moreover, previous rate hikes reduced inflationary pressures, although volatility in international markets remains a risk to the inflation outlook. Against this background, the Central Bank said that its current monetary policy stance remains appropriate. The Bank added that it, “stands ready to use the instruments at its disposal to maintain overall price stability.”