CBK holds key lending rate at 7 per cent for eighth straight month

May 27, 2021 Newsroom

Citing measures rolled out to mitigate the adverse economic disruptions from the pandemic, the Central Bank has retained the benchmark lending rate at 7 per cent for the eighth month in a row.

At its Monetary Policy Committee (MPC) meeting held on Wednesday, May 26, the banking industry regulator noted that current policies remain accommodative for Kenya’s growth plan.

The CBK observed that leading economic indicators point to recovery in economy with strong performance of agriculture, construction, ICT, real estate, and finance and insurance industries in the first quarter.

The country’s exports have remained strong, growing by 5.5 per cent between January and April compared to a similar period last year.

Significantly, CBK noted, receipts from horticulture exports and manufactured goods went up by 27.7 per cent and 33.9 per cent respectively in the first four months of this year compared to a similar period prior.

Tea exports, however, declined by 5.6 per cent, reflecting the impact of accelerated purchases recorded last year.

In the period under review, Kenya’s imports increased by 15.2 per cent in the four months to April compared to a similar period in 2020, largely as a result of improvements in imports of intermediate goods.

However, the receipts from services exports remained subdued, mainly due to the ongoing challenges in global travel and transport.

The Central Bank noted that enhanced COVID-19 containment curbs rolled out in the five counties of Nairobi, Kiambu, Machakos, Kajiado, and Nakuru between March 26 and May 1, are likely to pose just moderate impact on output as businesses in most sectors remained open.

As a result, the Central Bank said Kenya’s economy is expected to rebound this year supported by improvement in the services sectors of education, wholesale and retail trade, as well as recovery in manufacturing buoyed by strong global demand.

On account of the private sector market perceptions survey, the CEOs survey, and survey of hotels carried out ahead of the MPC meeting, CBK noted that there is a general sense of optimism about growth prospects this year.

Respondents in the three surveys attributed expected growth to the rollout of vaccines, steady resumption to normalcy with easing of curbs, good weather conditions, projections for improved exports to the EAC region, and expected increase in credit uptake by the private sector.

However, the respondents also raised concern about continued uncertainties over the pandemic, and increased cost of inputs.

The CBK foreign exchange reserves, which currently stand at $7,447 million translating to four-and-half months of import cover, continue to provide adequate cushion and a buffer against short-term shocks in the foreign exchange market, banking regulator said.