Why Kenya’s central bank held rates for the seventh time in a row

Kenya’s central bank held its benchmark lending rate at 9.0% on Monday, saying inflation was well anchored within the government’s preferred range and that the economy was operating close to its potential.

Policymakers have held the benchmark rate for seven straight meetings but they said that stance could change soon.

Month-on-month overall inflation remained within the target range in July and August 2019, and is well anchored. The inflation rate fell to 5.0 percent in August from 6.3 percent in July, reflecting decreases in the prices of both vegetable and non-vegetable food crops due to improved supply.

Food inflation declined to 6.7 percent in August from 7.9 percent in July following improved weather conditions. Non-food-non-fuel (NFNF) inflation remained below 5 percent, indicative of muted demand pressures and spillover effects of the excise tax indexation in July and recent increase in fuel prices.

Overall inflation is expected to remain within the target range in the near term mainly due to expectations of lower food prices with the expected favorable weather conditions, and lower electricity prices reflecting the reduced usage of expensive power sources.

The recent increase in international oil prices is expected to exert moderate upward pressure on fuel prices, but with limited pass-through effects on inflation.

“The MPC noted that inflation expectations remained well anchored within the target range, and that the economy was operating close to its potential. The Committee also noted the prospective tightening of fiscal policy which would provide scope for accommodative monetary policy in the near term,” it said.

Nevertheless, there is need to remain vigilant on the possible effects of the increased uncertainties in the external environment. The MPC concluded that the current policy stance remains appropriate, and therefore decided to retain the CBR at 9.00 percent.