Kenya: Central Bank keeps main policy rate at 10.00% in July
July 17, 2017
On 17 July, the Central Bank of Kenya (CBK) held its main policy rate at 10.00%, a decision which was in line with market expectations. The Bank has held its fire since last September, when the CBK cut the main policy rate in a bid to support lending to the private sector following the government’s decision to cap commercial bank interest rates.
The decision to keep the main interest rate unchanged came after inflationary pressures eased somewhat in June after climbing in the year up to May due to drought, which caused food prices to rise. Recent rains and government measures drove prices for several staple foods down in June, while demand-pull inflationary pressures remain relatively subdued. This reduced the pressure on the Bank to raise rates, particularly as higher inflation is expected to be transitory, and any tightening of monetary policy would take several months to feed through. On the demand side of the equation, growth slackened in Q1, and the PMI has dipped into pessimistic territory. However, with inflation still elevated and above the Central Bank’s target range of 2.5%–7.5%, the Bank felt unable to lower rates to support the economy, and preferred to maintain the current stance in order to anchor expectations.
The communique was devoid of forward guidance, although FocusEconomics Consensus Forecast panelists predict that rates will rise slightly towards the end of this year in order to keep inflation in check. An easing cycle should then begin in 2018 as price pressures recede.
Author: Christopher Mc Innes, Economist