NAIROBI, Kenya, Nov 30 – The Central Bank of Kenya (CBK) has indicated that it may consider re-evaluating its monetary policy framework as a result of by accelerated economic growth that could be outpacing the current policy.
CBK Governor Prof Njuguna Ndung\’u said the release of third-quarter growth statistics at the end of December by the Kenya National Bureau of Statistics, will probably show the economy is expanding at a faster pace than previously recorded.
"We have to keep revising our targets. By monetary programme, we mean the targets we have on money supply growth but the direction of monetary policy is the one that is going to direct growth," Prof Ndung\’u said.
The CBK boss said there was room for banks to raise credit further as inflationary risk declines and the country\’s rating improves.
"The market is deepening very fast. Everybody is bringing back money into the market; it is improving the transmission mechanism of monetary policy. We have to revise our framework in line with that," the Governor explained.
According to Prof Ndung\’u, the main reason for the consideration is the level of success in deepening financial services in the country.
CBK statistics indicate that there has been exponential growth in the number of bank branches standing at 1,030 in 2010 compared to a mere 534 branches in 2005, an indication of expanding financial services.
During the same period, the number of deposit accounts grew from 2.55 million to 12 million accounts at the end of September.
Prof Ndung\’u noted that the number of micro accounts, which have grown by 425 percent to 11.25 million accounts.
"The financial inclusion goal is to bring more people into the banking sector and it is working," he said adding that commercial banks were beginning to reduce the cost of operating bank accounts, which has played a pivotal role in roping in more of the un-banked.
Given the increased activity, the Monetary Policy Committee (MPC) left the key lending rate at six percent for the second consecutive meeting on November 25.
Since 2009, the MPC has slashed the Central Bank rate by 2.5 percentage points.
Commercial banks have continued to respond to MPC signals with average lending and base rates declining between May and October 2010.
"Medium sized banks switched from the most expensive to the cheapest lender by October 2010. This is a positive development for the growth of the SME sector," reads a statement from the MPC.
Kenya\’s credit rating has also improved with Standard and Poor\’s ranking Kenya at B+.
Prof Ndung\’u said the revised rating gives the government and private sector players an opportunity to source funding from international financial markets.