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Kenya Monetary Policy May 2021

Kenya: Central Bank stays put in May

At its 26 May meeting, the Monetary Policy Committee of Kenya’s Central Bank opted to keep the Central Bank rate unchanged at 7.00%, marking the eighth consecutive hold, after having cut it by 125 basis points during March–April 2020.

The decision was largely due to the Bank’s assessment that the Kenyan economy continued to improve in the first quarter, with high frequency data pointing to a strong recovery, meaning that further easing was not warranted. However, the upturn has likely been set back in Q2 due to renewed restrictions in April and May to curb the spread of the virus. While the Bank expects an overall rebound this year, it noted that the outlook remains highly uncertain due to the resurgence of Covid-19 infections, the reimposition of restrictions and an uneven vaccine rollout globally, suggesting it would have been premature to begin raising rates. Meanwhile, the Bank commented that inflation remains well anchored, and it expects it to stay within the 2.5%–7.5% target range in the near term, despite the recent increase in prices for fuel.

In terms of future guidance, the Bank stated that it “will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy”. The tone of the communiqué echoed previous statements, pointing to future policy moves being closely related to the evolution of the pandemic and the vaccination program, as the Bank “stands ready to take additional measures as necessary”.

The next meeting is scheduled to take place in July.

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