Overall month-on-month inflation declined from 3.25 percent in November 2012 to 3.20 percent in December, reflecting a continued decline in food prices and easing demand pressure in the economy.
Non-food-non-fuel inflation declined from 4.83 percent to 4.81 percent during the period.
“These developments, coupled with improved weather conditions and declining international oil prices continue to support a low and stable short-term outlook for inflation,” read a statement from the MPC.
The committee said the exchange rate has remained stable since its last meeting in November last year, fluctuating within a range of Sh85.38 to Sh86.61 against the US dollar.
The CBK’s foreign exchange reserves increased during the period providing a cushion to the foreign exchange market against both external and domestic shocks.
The MPC also noted that confidence in the economy remains high with economic growth in the quarter growing to 4.7 percent from 3.4 percent and 3.3 percent in the first and second quarters, respectively.
In addition, Diaspora remittances increased from $91.6 million (Sh7.9 billion) in October 2012 to $97.5(Sh8.4 million) in November 2012.
However, the committee noted that the main risks to macroeconomic stability were the uncertainty over the full resolution of the euro zone problems and balance of payments pressures attributed to the high current account deficit.
Nevertheless, the monetary policy measures in place were considered adequate to ensure effective liquidity management and maintain stability in the interbank market in the coming months.
Now focus will be on the commercial banks to see if they will follow suit and lower their lending rates.