Kenya: Central Bank slashes rate to eight-and-a-half-year low amid worsening economic backdrop
On its 23 March meeting, the Monetary Policy Committee (MPC) of Kenya’s Central Bank slashed the Central Bank Rate by a larger-than-expected 100 basis points to 7.25%, taking it to the lowest point since September 2011. The Central Bank also lowered the cash reserve ratio for commercial banks from 5.25% to 4.25%, freeing up extra bank lending capacity worth KES 35.2 billion.
A deterioration in economic prospects for 2020 due to the pandemic was behind the decision to cut the Central Bank Rate. The Central Bank axed its 2020 growth expectations from the baseline 6.4% to a potential 3.4% owing to disruptions to supply chains and domestic production, as well as falling demand among key trading partners due to the Covid-19 pandemic. Meanwhile, inflation is expected to remain within the target band of 2.5%–7.5% in the short-term, with downward pressure coming from lower food prices, a drop in global oil prices and subdued demand.
Regarding forward guidance, the Bank stressed that it will keep a close track of “developments in the global and domestic economy” and stated that it stands ready to take any further measures, should they be necessary.
The next monetary policy meeting is scheduled for 27 April 2020.