Kenya: Central Bank keeps key rate on hold in January
January 22, 2018
The Central Bank opted to keep the keep the key rate unchanged at 10.00% at its first meeting of 2018 held on 22 January. The decision was in line with market expectations.
Inflation continued falling at the close of 2017, dropping from 4.7% in November to 4.5% in December, but remaining around the midpoint of the Bank’s 2.5%–7.5% target range. December’s reading marked the lowest in over four years. Driving the downward trend have been lower food prices, supported by improving weather conditions following a long drought, which boosted agricultural output. While fuel and electricity prices increased during the festive period in December, they were more than offset by the decline in food prices.
Core inflation again came in below 5.0% in December, signaling that demand pressures remained muted. Although the downward trend in inflation opened room for monetary accommodation to stimulate higher economic activity, upward price pressures stemming from the ascent in oil prices may deter the trend. Nevertheless, inflation is expected to remain well anchored and within the target-band in the near term.
Lacking substantial forward guidance, the Bank signaled in its statement the possibility of a future rate cut, pointing out that there is scope for a more accommodative monetary policy in the near-term amid falling inflation. However, further monitoring and assessment of policy decisions, including the impact of the cap on commercial banks’ lending rates, along with developments in the global economy, are needed to determine whether to change stance. The date of the next monetary policy meeting has yet to be disclosed.
Kenya Interest Rate Forecast
FocusEconomics Consensus Forecast panelists expect the Bank Rate to end 2018 at 9.42%. For 2019, panelists project that the Bank Rate will be cut to 8.75% by the end of the year.
Author: Nihad Ahmed, Economist