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Kenya Monetary Policy January 2023

Kenya: Central Bank maintains rate at 8.75%

At its 30 January meeting, the Monetary Policy Committee (MPC) of the Central Bank of Kenya decided to hold the Central Bank Rate at 8.75%. In the first meeting of the year, the Bank paused the tightening cycle after two consecutive hikes in September and November of 75 and 50 basis points, respectively. The decision was priced in by markets.

The meeting outcome was motivated by the slowing of inflation in December due to decreased food prices amid the easing of supply chain constraints, and lower international crude and commodity prices. The Bank expects inflation to recede further due to the lagged effects of previous hikes, the expected reduction of expenditure due to the supplementary budget and the recent announcement of duty-free imports for key food items.

Regarding activity, the domestic economy clocked a strong economic performance last year and should remain robust in 2023, lending upside pressure to inflation. Globally, however, ongoing uncertainty and weaker projected growth further motivated the Bank to hold rather than hike. Lastly, from the external sector side, the MPC stated that the level of foreign reserves was an adequate buffer for the foreign exchange market.

In its communiqué, the MPC did not include any new forward guidance. The Bank reiterated that it would “closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary”.

The next meeting is scheduled for March 2023, but the Bank said it could meet earlier if conditions warrant.

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