Kenya: Central Bank leaves rate unchanged in July
At its 28 July meeting, the Monetary Policy Committee of Kenya’s Central Bank once again decided to leave the Central Bank rate unchanged at 7.00%, marking the ninth consecutive hold, after having cut it by 125 basis points during March–April 2020.
The decision came amid high-frequency data pointing to a recovery in GDP in the first half of this year, and a bounce-back in 2021 overall as restrictions are further rolled back and activity fully resumes. That said, the Bank noted the economy is still underperforming and an output gap remains. Moreover, it pointed out the uneven global recovery and the still-heightened uncertainty over the evolution of the pandemic amid new strains of the virus, suggesting a rate hike would have been premature. Meanwhile, the Bank expects inflation to be elevated in the short term—due to higher prices for fuel and food and higher taxes—but it will remain well within the 2.5%–7.5% target band, kept in check by muted demand.
In terms of forward guidance, the Bank once again stated that it “will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy”. The tone of the communiqué was unchanged from previous meetings, hinting that future policy moves will be closely related to the evolution of the pandemic and the vaccination program, with the Bank standing “ready to take additional measures as necessary”. Most of our panelists expect the Central Bank rate to end 2021 at 7.00%.
The next meeting is scheduled to take place in September.