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Kenya Monetary Policy November 2018

Kenya: Central Bank leaves policy rate unchanged in November meeting

At its latest meeting held on 27 November, the Monetary Policy Committee (MPC) of Kenya’s Central Bank opted to keep the Central Bank Rate (CBR) on hold at 9.00%. The Bank’s decision was in line with market expectations.

Sustained optimism on Kenya’s growth prospects and well-anchored inflation expectations prompted the Bank to leave the rate on hold. Inflation edged down from 5.7% in September to 5.5% in October, remaining within the Bank’s 2.5%–7.5% target band. A decline in food prices, thanks to favorable weather conditions, offset higher energy and transport costs that arose from the implementation of VAT on petroleum products in September. Following last year’s protracted election cycle, economic activity has been supported by a more buoyant agricultural sector and an improvement in investor confidence.

Lower food prices, a decline in oil prices and reduced electricity tariffs should contain price pressures and keep inflation within target. Meanwhile, the government’s “Big Four” agenda that has prioritized investment in key sectors, along with healthy inflow of remittances and solid private sector credit growth, should help fuel a faster pace of expansion. While the introduction of the VAT should help to narrow the fiscal gap, the government will likely face challenges in meeting its fiscal targets.

Given that inflation expectations remain well-anchored and the growth outlook remains optimistic, the Bank’s accompanying statement indicated a neutral stance and noted that it would continue to closely monitor domestic and global developments to inform the course of monetary policy.

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