Kenya: Central Bank slashes rates in November
November 25, 2019
At its meeting on 25 November, the Monetary Policy Committee (MPC) of Kenya’s Central Bank decided to axe the central bank rate by 50 basis points to 8.50%, marking the first cut in 16 months. The decision had been broadly expected by market analysts.
Against a background of well-anchored inflation and inflation expectations, the Bank opted to slash the monetary policy rate in November to spur economic activity. Although inflation accelerated to 4.9% in October (September: 3.8%), the MPC noted that the increase largely reflected temporary factors given that core inflation metrics remain well below the midpoint of the 2.5%–7.5% target band. In addition, the ongoing tightening of fiscal policy provided room for a more accommodative stance, especially after the repeal of the interest rate cap law which had for years hindered the transmission of monetary policy.
While the Bank provided little substantive forward-looking guidance, the Bank will likely stand pat in the near-term given that inflation is expected to remain within the target range and the repeal of the interest cap law ought to boost the private sector’s access credit. Nevertheless, adverse weather condition and oil price volatility continue to pose upside risks to inflation ahead.
The next monetary policy meeting is scheduled for 20 January 2020.
Author: Nicolás J. Aguilar, Economist