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Kenya Monetary Policy July 2020

Kenya: Central Bank leaves rates unchanged in July

At its 29 July meeting, the Monetary Policy Committee (MPC) of Kenya’s Central Bank held the Central Bank Rate stable at 7.00%, where it has been since 29 April. The decision was largely in line with market expectations.

The Central Bank kept its monetary policy stance unchanged in July despite a still-challenging economic backdrop due to Covid-19. The decision was supported by the Bank’s view that “the package of policy measures implemented since March were having the intended effect on the economy and will be augmented by the implementation of the measures in the FY2020/21 Budget”. Moreover, good weather conditions have boosted key agricultural output, boding well for the external sector, which coupled with resilient remittances inflows points to a quicker-than-expected economic recovery after the pandemic.

In terms of forward guidance, the Bank highlighted that it still has plenty of firepower and “stands ready to take additional measures as necessary”. As such, the Bank’s tone suggests that the return to monetary policy easing in H2 will likely depend on the impact of the policy measures so far as well as on developments in the global and domestic economy. With inflation projected to remain within the target range of 2.5%–7.5% in the short term, thanks to lower food prices, the impact of the reduction of VAT and muted demand pressures, the Bank should have the leeway to reduce rates if required.

The next MPC meeting is scheduled for September 2020.

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