Kenya: Central Bank holds policy rate at over one-decade-high level in April
At its meeting on 3 April, the Monetary Policy Committee of the Central Bank of Kenya (CBK) kept the key policy rate unchanged at 13.00%. As a result, the policy rate remained at its highest level in over a decade. The hold, which came on the heels of February’s 50 basis point hike, was largely in line with market expectations and followed a cumulative 600 basis points of hikes since May 2022.
The decision was motivated by the consolidation of the downward trend in inflation: In March, price pressures receded to a two-year low of 5.7%, inching closer to the mid-point of the CBK’s 2.5–7.5% target band. The tight monetary policy backdrop and the recent gains of the shilling against the USD have allowed inflation to decrease further at the outset of 2024. Moreover, the CBK noted robust economic activity in Q1, which gave the Bank room to keep its policy rate at the 12-year high level. As a result, the Bank deemed that the current policy stance would anchor the downward path of inflation towards the mid-point of the target range.
The CBK’s communiqué was void of explicit forward guidance, but the Bank once again underlined that it “stands ready to take further action as necessary in line with its mandate”. That said, our panelists expect the tightening cycle to have reached its peak and our Consensus is for 175 basis points of cuts by end-2024.
The next monetary policy meeting will be held in June, with the Bank yet to specify an exact date.
Analysts at the EIU commented on the outlook:
“We expect the CBK to make a series of interest-rate cuts in 2024, possibly starting in June, broadly in line with US trends.”
In contrast, Goldman Sachs analysts expect monetary easing to begin later:
“The next MPC meeting will take place in June. We now see risks of a more front-loaded cutting cycle than implied by our baseline for the first cut to come in Q3 2024 due to the currency and inflation developments and the decline in macro risks on the back of the Eurobond issuance.”