Kenya Central bank retains main lending rate at 9pc

Kenya’s central bank held its benchmark lending rate at 9.0 percent, the bank’s monetary policy committee said after a customary meeting to review the outcome of its previous policy decisions and recent economic developments.

The meeting was held against a backdrop of domestic macroeconomic stability, sustained optimism on the economic growth prospects, improving weather conditions in most parts of the country and increased uncertainties in the global financial markets.

The Committee noted that inflation expectations remained well anchored within the target range, but there is need to remain vigilant on possible spillovers of recent food and fuel price increases. The Committee further noted that the economy was operating close to its potential.

The MPC concluded that the current policy stance remains appropriate, and will continue to monitor any perverse response to its previous decisions. The Committee therefore decided to retain the CBR at 9.00 percent.

The banking sector remains stable and resilient. Average commercial banks’ liquidity and capital adequacy ratios stood at 51.0 percent and 18.3 percent, respectively, in April.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 12.9 percent in April compared to 12.8 percent in February, reflecting increases in NPLs mainly in the personal/household, real estate and manufacturing sectors. Banks have continued with mitigation measures, including enhanced recovery efforts. Additionally, prompt settlement of delayed payments by government and private sector entities will curtail a further increase in NPLs and support economic growth.

Private sector credit grew by 4.9 percent in the 12 months to April, compared to 4.3 percent in March. Strong growth in credit to the private sector was observed in the following sectors: manufacturing (7.9 percent); trade (8.4 percent); finance and insurance (13.3 percent); and consumer durables (16.4 percent). Private sector credit growth is expected to continue to strengthen in the remainder of 2019.

The foreign exchange market has remained stable supported by the narrowing of the current account deficit to 4.5 percent of GDP in the 12 months to April 2019 from 5.5 percent in April 2018. This reflects resilient performance of exports particularly horticulture and coffee, strong diaspora remittances, and higher receipts from tourism and transport services. Additionally, growth in imports slowed mainly due to lower imports of food. The current account deficit is expected to narrow to 4.8 percent of GDP in 2019 from 5.0 percent in 2018.