CBK lending rate held steady for fifth month

May 3, 2012
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The review comes despite a decline in month-on-month inflation which now stands at 13.06 percent /FILE
NAIROBI, Kenya, May 3 – The Monetary Policy Committee (MPC) has chosen to retain the Central Bank Rate (CBR) at 18 percent for the fifth consecutive month.

The review comes despite a decline in month-on-month inflation which now stands at 13.06 percent and a stabilising exchange rate fluctuating between a narrow range of Sh83.07 and Sh83.37 to the dollar.

Following its evaluation of its monetary policy stance from the previous month, the MPC concluded that there still remain potential threats and risks in the economy hence retention of the CBR.

“An underlying inflationary pressure from food and fuel prices that resulted in an increase in the overall three-month annualised inflation from 7.65 percent in March 2012 to 9.22 percent in April 2012,” MPC Chairman and Central Bank Governor Njuguna Ndung’u explained in a statement.

He added that despite non-food-non-fuel inflation declining in April, it is still above the government short-term inflation target of nine percent for the fiscal year 2011/12.

According to analysts, it is unlikely the government will reach its nine percent target by June, with British American (Britak) Asset Managers predicting inflation to close the year at 7.23 percent.

“The rising international crude oil prices to $127.0 per barrel in March 2012 increased the current account deficit (CAD) to an estimated 13.6 percent of GDP. It continues to pose a threat to both exchange rate stability and the continued easing of inflation pressure,” the Governor added.

The widening CAD has been a worrying factor for most analysts that fear its impact could cause the economy to become susceptible to exogenous shocks, especially in the midst of a fragile global macroeconomic environment.

The MPC noted that some lingering price pressures that could give rise to adverse inflationary expectations must be addressed to facilitate a return to high economic activity.

Britak marginally revised the country’s GDP growth forecast downward to 5 percent from 5.2 percent for 2012, due to weak exports, inflation and high interest rates.

Interest rates skyrocketed to 32 percent last November after the fourth round of hikes by banks since June 2011, however rates have been coming down.

Private sector credit growth declined from an annual growth of 26.05 percent in February 2012 to 24.01 percent in March 2012, achieving the desired objective of the MPC’s tightening policy.

Head of Trading at Commercial Bank of Africa’s Treasury Department Duncan Kinuthia says he expects a cut in the next MPC meeting provided that inflation takes a further decline.

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