Speaking after a meeting of the CBK’s Monetary Policy Committee (MPC), Governor Njuguna Ndung’u said the policy stance had anchored inflationary expectations and continues to deliver the desired objective of price stability.
“The overall month-on-month inflation declined from 7.36 percent in November 2013 to 7.15 percent in December 2013 showing that credit expansion during the period had not been inflationary,” Ndung’u who chairs the MPC said in a statement.
Non-food-non-fuel (NFNF) inflation declined from 5.01 percent to 4.71 percent during the month reflecting the impact of the monetary policy stance.
“In the three-month annualised Overall and NFNF inflation measures declined during the period. These reflected an easing of underlying inflationary pressure,” Ndung’u said.
The exchange rate remained stable during the period fluctuating within a narrower range of Sh85.72 and Sh86.72 against the dollar in December 2013 compared to a range of Sh85.27 and Sh86.99 in November 2013.
He said the committee noted that the government’s domestic borrowing programme for the Fiscal Year 2013/14 remains consistent with the monetary policy objectives.
“The coordination between monetary policy and the supportive growth-oriented fiscal policy continues to generate inflation and exchange rate stability, increased capital inflows and an improved environment for financial intermediation,” he stated.
The movements in the short-term interest rates were generally aligned to the Central Bank Rate (CBR) while Open Market Operations were sustained to support liquidity management.
Commercial banks’ lending rates declined from an average of 19.73 percent in 2012 to about 16.80 percent in 2013 which was consistent with the monetary policy stance.
“However, there remains space for further reductions in lending rates by commercial banks while raising deposit rates to incentivise mobilisation of investible funds,” he stated.
The banking sector remains solvent and resilient with the number of loan applications increasing from 109,260 in October 2013 to 129,751 in November 2013 and were distributed across the key sectors of the economy according to the latest stress tests and data.
Consequently, the annual growth in private sector credit increased from 18.0 percent in October 2013 to 20 percent in November 2013. The ratio of non-performing loans to total loans, which measures credit risk, declined from 5.3 percent to 5.1 percent during the period.
The committee notes that confidence in the economy remains strong. Specifically, improved activity at the Nairobi Securities Exchange (NSE) was reflected in the buoyancy of the NSE-20 Index which averaged 5006.9 from October to December 2013.
Diaspora remittances remained resilient and averaged $110.6 million (Sh9.5 billion) per month from July to November 2013.
The private sector expects inflation and the exchange rate to remain stable, and a strong growth in 2014 according to the MPC market perception survey conducted in December 2013.
“The recent visit and statements by the Managing Director of the IMF endorsing the country’s track record of prudent macroeconomic policy and management have provided a positive signal to potential investors. This endorsement will be enhanced by any future partnership,” he added.
The committee noted that although the growth of the global economy was projected to pick-up in 2014, the recovery was expected to be modest and uneven.
“The projected robust growth of Sub-Saharan Africa economies in 2014 endorsed a stable outlook for the exchange rate with expectations for increased foreign exchange inflows from regional trade, in addition, the forthcoming Sovereign Bond issue will further bolster the country’s foreign exchange reserves and support exchange rate stability,” he said.