CBK maintains 8.5pc rate despite rise in inflation

NAIROBI, Kenya, Sept 3 – The Central Bank of Kenya (CBK) has decided to hold its lending rate at 8.5percent for a year and three months now despite rising inflation in recent months.

Inflation has risen from 6.27 in March this year to 8.36 percent in August driven by an increase in food prices, house rent and transport costs.

But on Wednesday, the Central Bank’s Monetary Policy Committee (MPC) said they agreed on retaining the Central Bank Rate(CBR) at 8.5pc following monitory policy measures already in place for taming inflation.

“The committee concluded that the monetary policy measures in place coupled with the effective liquidity management operations will continue to moderate any pressures that might give rise to adverse inflation expectations,” MPC Chairman Professor Njuguna Ndung’u said.

The regulator says there were no fundamental structural pressures on inflation, but will pursue a tightening bias in the money market through monetary policy operations in order to continue to anchor inflationary expectations.

“Overall inflation averaged 7.18 percent from January to August 2014. The month-on-month non-food-non-fuel inflation increased slightly from 4.45 percent in July 2014 to 4.92 percent in August 2014,” Ndung’u said after the MPC meeting.

In June this year CBK set the first Kenya Banks Reference Rate (KBRR) at 9.13 percent, to be the basis rate for banks to price their loans to borrowers.

This is after the CBR seemed to have less pressure on banks to reduce their lending rates to borrowers. The formula was developed as an outcome of discussions between the stakeholders, CBK and lead by The National Treasury as a measure to bring down the cost of borrowing in the country.

However the annual growth in the private sector credit stood at 25.54 percent in July 2014 compared with 25.79 percent in June 2014 which was channelled mainly to productive sectors of the economy.

Meanwhile the exchange rate has continued to be supported by resilient foreign exchange inflows through Diaspora remittances and sustained foreign investor participation in the Nairobi Securities Exchange (NSE).