Kenya: Central Bank surprises markets by axing rate again in January
At its first meeting of the year on 27 January, the Monetary Policy Committee (MPC) of Kenya’s Central Bank decided to cut the Central Bank Rate by 25 basis point to 8.25%. This marked the second consecutive cut and moved the rate to an over eight-year low. The decision came as a surprise to markets, which had been expecting the Bank to stay put.
Benign inflation expectations and below-potential economic growth drove the Bank’s decision to axe the rate. Although inflation rose to 5.8% in December (November: 5.6%), the Bank considers that this increase reflects temporary effects stemming from higher food and transport prices during the holiday season, as core inflation remains below the 5.0% midpoint of the 2.5%–7.5% target range. In addition, the Bank judged there was room for further easing in order to boost supply of credit and, in turn, economic activity despite noting that the impact of November’s rate cut—amid the repeal of the interest rate cap law—is still being transmitted into the economy.
In terms of forward guidance, the Bank stated that it will closely keep track of the impact of this looser policy stance by monitoring “developments in the global and domestic economy” and stated that it is ready to take any further measures, should they be necessary.
The next monetary policy meeting is scheduled for 27 March 2020.