Central Bank of Kenya
Hopes of a drop in interest rates were dashed after the body that advises the Central Bank on pricing of credit and inflation left untouched a key rate that signals adjustments in pricing of interest rates.
The Monetary Policy Committee maintained the Central Bank rate (CBR) at 18 per cent, a record level for CBK’s previous two sessions.
CBK said while the measure to rein in inflation had begun bearing fruit with the shilling stabilising and the cost of living dropping, there are some sections of the economy that were yet to fully report changes.
“The MPC Market Perceptions Survey conducted last month revealed that the private sector expects inflation to continue declining; the exchange rate to remain stable, and the economy to remain resilient this year,” said the statement.
“The inflation measure excluding food and fuel (an inflation measure that excludes volatile items that are not subject to monetary policy) had yet to respond to its measures taken in the recent months.”
The MPC also expressed concern on the future of balance of payments as the heightened risks around the movement of oil through the Strait of Hormuz is causing global crude oil prices to rise – a threat to the stability of the exchange rate and inflation.
MPC noted that although private sector credit growth was declining, its effect on demand for imports and consumer goods had ‘yet to be felt.’
Other reasons given for the latest move include uncertainties around the resolution of the Greek debt crisis, which could cause a downturn in the eurozone growth – in the process depressing tourism and demand for some of Kenya’s horticultural exports.
While a section of analysts had hinted of a possible marginal drop, many expected CBK to leave the CBR untouched, citing the recent reduction in inflation as insignificant to warrant any policy changes.
By MORRIS ARON, The Standard
