Central Bank of Kenya maintains rates in June

At its meeting on 5 June, the Central Bank of Kenya (CBK) decided to retain the key policy rate at an over-decade high of 13.00%, while narrowing the interest rate corridor from plus or minus 250 basis points to plus or minus 150 basis points. The hold, which mirrored April’s, followed 600 basis points of cumulative hikes since May 2022 and was largely anticipated by markets.

The CBK's hold reflected the recent anchoring of overall inflation at the mid-point of the 2.5–7.5% target range despite persistent stickiness in core inflation. The Bank opted to maintain a restrictive monetary policy stance in order to stabilize the exchange rate and manage inflationary expectations amidst a backdrop of strong economic growth.

The CBK provided no explicit forward guidance on future interest rate movements, indicating instead that it will closely monitor the impact of its policy measures and global and domestic economic developments. The Bank expressed its readiness to take further action as necessary and announced that it will meet again in August. Virtually all of our panelists see the CBK lowering interest rates before the end of the year; the rest expect it to hold fire through end-2024. Our Consensus is for around 125 basis points of additional cuts.

Goldman Sachs’ Bojosi Morule commented: “We view the reintroduction of the interest rate corridor in August 2023 and any subsequent narrowing of the corridor as positive from the standpoint of embracing more FX flexibility. We continue to expect the CBK to deliver its first policy cut of the cycle in Q3 2024.”

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