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Kenya Monetary Policy July 2022

Kenya: Central Bank surprises markets and keeps rate unchanged in July

At its 27 July meeting, the Monetary Policy Committee (MPC) of the Central Bank of Kenya kept its Central Bank Rate on hold at 7.50%, after May’s 50 basis points hike. The decision took analysts largely by surprise amid expectations of further currency weakness and the need to keep an interest rate differential over developed markets.

The decision was mainly based on the Central Bank’s assessment of the balance of risks; namely, mounting fears of a global economic slowdown and heightened uncertainty, driven in no small part by the war in Ukraine. While the inflation rate has continued to accelerate in June, to 7.9% (May: 7.1%), the Bank expects price pressures to ease in the near term. The recent moderation in global commodity prices, the additional fiscal package and the ongoing transmission of the previous hike are expected to exert downward pressure on inflation.

In its communiqué, the MPC did not include any new forward guidance. The Bank reiterated that it will “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 to take place in September, but the Bank hinted it could meet earlier if conditions warrant it.

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