Interest Rate in Kenya

Kenya - Interest Rate

Central Bank keeps rate unchanged in November

At its final meeting of the year on 29 November, the Monetary Policy Committee of Kenya’s Central Bank decided to leave its key rate unchanged at 7.00%, marking the 11th consecutive hold. The decision was widely in line with market analysts’ expectations.

Well-anchored inflation expectations and signs of a robust recovery in the second half of 2021 and into 2022 underpinned the Bank’s decision to continue its wait-and-see approach. Headline inflation declined to 6.5% in October (September: 6.9%), amid easing price pressures for fuels, while still-downbeat demand is expected to keep inflationary pressures in check ahead. As such, the Bank sees the headline reading averaging within its 2.5%–7.5% target band in the short term. Meanwhile, available indicators suggest that positive underlying conditions have carried on in H2 this year and growth is expected to remain robust in 2022, in line with the progressing vaccination campaign which will pave the way for normalizing activity.

The Bank’s communiqué did not include any strong forward guidance. Once again, the Bank reiterated its commitment to “closely monitor the impact of the policy measures, as well as developments in the global and domestic economy” and act accordingly. A small majority of our panelists pencil in rate hikes in H2 2022.

Commenting on the outlook for monetary policy, analysts at the EIU noted:

“Given that inflation remains within the CBK’s informal 2.5%–7.5% target range, there is no immediate pressure to tighten monetary policy—meaning that the benchmark rate will stay at 7.0% in 2021—but we expect a small, 25-basis-point hike in 2022, followed by similar upward adjustments in 2023–26.”

The next meeting is scheduled to take place in January 2022.

FocusEconomics Consensus Forecast panelists see the Central Bank rate ending 2022 and 2023 at 7.36% and 7.71%, respectively.