CBK retains benchmark rate at 7 percent as economy picks up
The Central Bank of Kenya (CBK) has signaled a low-interest rate stance to the market by leaving its benchmark lending rate unchanged at seven percent at its 12th-straight policy meeting on held on Wednesday.
The CBK points to the continued resurgence of the economy and says its current accommodative policy is supportive of the economy as it recovers from pandemic-induced battering.
The reserve bank expects growth to carry from the first three quarters of 2021 even as it shrugs inflation concerns as it expects the cost of living to hold within the target band of between 2.5 and 7.5 percent.
“The Committee noted that inflation expectations remain anchored within the target range, and leading economic indicators showed continued robust performance,” MPC chairman and CBK governor Dr Patrick Njoroge said.
“The Committee concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 percent.”
According to Dr Njoroge, the CBK foreign exchange reserves, which currently stand at 8.29 billion (5.07 months of import cover), continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market.
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In the period, overall inflation declined to 5.7 percent in December 2021 from 5.8 percent in the previous month attributable to ease in costs of various goods.
Global economy is likely to be muted this year owing to expected lower growth in the US and China markets. Uncertainties in the international economic outlook are also on the rise reflecting elevated risks from emerging Covid-19 variants, supply chain woes, rising oil prices, and inflation.
The three surveys carried out ahead of the MPC meeting – Private Sector Market Perception Survey, CEOs Survey, and the Survey of Hotels – show continued optimism about economic growth prospects this year.
The respondents attributed the positive outlook to the recovery of key sectors backed by government stimulus plans, lower inflation, increased vaccination against covid, and expected cut in the cost of doing business due to slashing of electricity bills.
However, the respondents are concerned about increasing political temperatures owing to the August General Election as it may dampen the speed of recovery.
Bed occupancy in hotels and restaurants was at the highest in December 2021 since the onset of the pandemic, the survey on hotels shows.
CBK said Kenya’s exports posted an 11.1 percent jump last year compared to 3.2 percent in 2020.
Horticulture and manufactured goods exports increased by 18.9 percent and 33.4 percent respectively last year compared to 2020.
Tea receipts, however, went down by 2.7 percent in 2021 due to the impact of accelerated purchases recorded in the previous year at the onset of the pandemic.
The country’s imports went up by 25.4 percent last year compared to a drop of 12.4 percent realized in 2020. The uptick in imports was attributable to oil products in the 12-month period to December.
