Kenya: Central Bank stays put in May, adopts tightening bias
May 6, 2015
At its 6 May monetary policy meeting, the Central Bank of Kenya (CBK) left the Central Bank Rate unchanged at 8.50%, where it has remained since May 2013. The decision was widely expected by market analysts. In addition, the Central Bank said that it would pursue a tightening bias to contain inflation expectations as, “recent developments in the global and domestic foreign exchange markets have triggered inflationary expectations and present a threat to the price stability objective of the CBK.”
According to the Central Bank, domestic GDP growth picked up in the final quarter of last year, with healthy contributions from the financial and insurance sector, plus confidence in the economy was strong in April. On the international front, the Bank expects both global and Sub-Saharan Africa GDP growth to pick up in 2016. Regarding price developments, the Bank noted that even though inflation rose considerably in March and April, mainly due to higher food prices resulting from dry weather, headline inflation remained within the Bank’s target range of plus/minus 2.5 percentage points around its 2.5% target. What is more, the Central Bank highlighted that the recent rise in inflation was not demand driven.
Regarding foreign exchange markets, the Central Bank noted that the Kenyan shilling (KES) had depreciated against the U.S. dollar, mainly resulting from the strength of the greenback and a seasonal increase in demand for foreign exchange. Conversely, the Bank said that strong remittances inflows and weak international oil prices were supportive for the Kenyan shilling. Moreover, the Bank highlighted that its international reserves, together with the precautionary facility from the International Monetary Fund, provided an adequate buffer to cushion potential external shocks.