CBK holds base rate at 18pc to tame inflation

March 6, 2012
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CBK boss Prof Njuguna Ndung'u/ FILE
NAIROBI, Kenya, Mar 6 – The Monetary Policy Committee (MPC) has maintained the current Central Bank Rate (CBR) at 18 percent in a bid to ensure reduced inflation and sustain the exchange rate stability.

After a meeting on Tuesday, the committee also observed that the current monetary policy stance supported by appropriate fiscal policy had continued to deliver the desired outcomes on inflation and the exchange rate.

Overall inflation continued to decline, dropping from 18.31 percent in January 2012 to 16.69 percent in February, while the exchange rate of the Kenya shilling to the US dollar remained stable within the narrow range of Sh82.65 to Sh83.93, an outcome of the policy of a floating exchange rate.

Demand pressures on inflation eased following the slowdown in private sector credit growth that expanded on an annual basis by 28 percent in January 2012 from 30.9 percent in December 2011.

Measures taken by the Kenya Bankers Association (KBA) in December 2011 were noted to have assisted to cushion borrowers from potential effects of high interest rates and there was no increase in net non-performing loans.

The MPC Market Perceptions Survey conducted in February this year revealed that the private sector expects inflation to continue declining while the exchange rate remains stable, for the economy to remain resilient in 2012.

Nevertheless, the committee also noted there were still potential risks in the economy including the inflation measure excluding food and fuel had yet to respond notably to its measures taken in the recent months.

Although private sector credit growth was declining, its effect on both the demand for imports and consumer goods had yet to be adequately felt.

This is the second consecutive month the MPC has left the CBR untouched.

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