Inflation pressures fleeting, lending rate stays at 11.50pc – CBK

January 20, 2016
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CENTRAL BANK's Monetary Policy Committee retains key lending rate at 11.50pc; says inflation pressures are temporary/FILE
CENTRAL BANK’s Monetary Policy Committee retains key lending rate at 11.50pc; says inflation pressures are temporary/FILE
NAIROBI, Kenya, Jan 20 – The Central Bank of Kenya’s Monetary Policy Committee has retained the key lending rate at 11.50 percent.

The MPC which met on Wednesday said the CBK would continue to use the instruments at its disposal to maintain overall price steadiness while ensuring stability in the financial sector.

“The committee concluded that the current inflation pressures are temporary, and that the monetary policy measures currently in place are containing any demand pressures in the economy,” a statement by Central Bank Governor, Dr Patrick Njoroge who chairs the MPC said.

The MPC which met to review market developments and the outcomes of its previous monetary policy decisions noted that month-on-month overall inflation was 8.0 percent in December 2015, up from 7.3 percent in November.

“The increase was driven largely by food prices, and the main items were Irish potatoes, tomatoes, sukuma wiki, carrots, cabbages, onions, beef with bones, and avocados,” the MPC said.

The items contributed 2.3 percentage points to overall inflation and 6.3 percentage points to food inflation in December 2015.

New Excise Taxes on alcoholic beverages and tobacco products, introduced on December 1, 2015 contributed 0.3 percentage points to overall inflation and 1.2 percentage points to the non-food-non-fuel (NFNF) inflation.

“The NFNF inflation increased to 5.6 percent in December from 4.8 percent in November. While the 3-month annualised NFNF inflation increased as a result of the new Excise Taxes, there were no evident adverse demand pressures in the economy.”

The MPC explained that the foreign exchange market has remained stable since November 2015, despite the rise in US interest rates, impact of the slowdown in China, and volatility in other global financial markets.

“Stability in the foreign exchange market continues to be supported by a narrowing current account deficit largely due to a lower import bill for petroleum products, recovery in tourism, tea and horticulture exports, and Diaspora remittances.”

It said the Government’s borrowing plan in the first half of the Fiscal Year 2015/16 ensured that the build-up in domestic debt was consistent with the thresholds set in the Medium-Term Debt Management Strategy.

“The Government continues to review its borrowing plan in line with market conditions and prudent budget management.”

Bank liquidity and its distribution has improved since November but the CBK continues to monitor the sector, particularly liquidity and credit risks.

The MPC says the economy remained strong in the third quarter of 2015, posting a growth rate of 5.8 percent compared to 5.2 percent in a similar period of 2014.

“The CBK Market Perception Survey of January 2016, showed increased optimism for improved business conditions and stronger growth in 2016, largely due to strengthened macroeconomic environment, continued public investment in infrastructure, lower oil prices, improving tourism performance, and a higher country profile.”

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