Kenya: Central Bank holds rate steady at first meeting of the year
January 28, 2019
At its latest meeting held on 28 January, the Monetary Policy Committee (MPC) of Kenya’s Central Bank kept the Central Bank Rate (CBR) at 9.00%. The decision was in line with market expectations.
The rate was held steady on stable inflation and solid optimism regarding future economic activity. Inflation came in at 5.7% in December (November: 5.6%), remaining within the Bank’s target range of 2.5%–7.5%. Although oil prices took a sharp dive in October–December, the 8% VAT on petroleum products kept fuel costs elevated, counteracting a decline in food prices stemming from favorable weather conditions. Meanwhile, economic growth has been supported by buoyant activity in the agriculture and hydro-electrical sectors, a flourishing tourism industry, and a strong inflow of remittances.
The economy is expected to continue growing robustly this year, thanks to the government’s “Big Four” agenda that has prioritized investment in key sectors, along with healthy private consumption supported by strong growth in remittances and firm expansion in credit. While the introduction of the VAT has strengthened the fiscal account, the misalignment between overly optimistic revenue targets and the government’s spending plans will likely pose challenges in meeting the fiscal targets.
With inflation expectations well-anchored and within-target, and the growth outlook still upbeat, the Bank’s accompanying statement indicated an unchanged stance and noted that it would continue to closely monitor domestic and global developments—especially U.S.–China trade tensions, Brexit, the slowdown of the Chinese economy, and the move to tighten monetary policy in advanced economies—to inform future decisions.
Author: Nihad Ahmed, Economist