The committee observes that inflation will remain within the government’s target of 2.5 percent to 7.5 percent in the short term/FILE
NAIROBI, Kenya Nov 28 – The Monetary Policy Committee (MPC) has retained Central Bank of Kenya lending rate at 10 percent owing to mild inflationary pressures and a stable foreign exchange market.
This will see banks’ lending rates remain at 14 percent.
The committee observes that inflation will remain within the government’s target of 2.5 percent to 7.5 percent in the short term.
Inflation however increased to 6.5 percent in October 2016 from 6.3 percent in September due to changes in prices of food items such as tomatoes and sugar.
According to the committee the available data is inaccurate to facilitate an analysis on the impact of the monetary policy following the introduction of interest rates cap on banks’ lending and deposits.
The committee says the banking system liquidity and its distribution have stabilised but the Central Bank of Kenya (CBK) will continue to monitor credit and liquidity risks in the sector.
“The committee observed that the private sector growth had stabilized at 4.6 percent in October. The slower growth witnessed over the last several months was found to be largely an outcome of structural factors in the banking sector rather than monetary policy,” the committee noted citing that there is no evidence of this having a negative impact on the economy.
The impact of Brexit, political development in the United States and uncertainty in the tightening of the US monetary policy makes global growth prospects remain fragile and its implications for global capital flows remain a concern.
CBK foreign exchange reserves currently stands at US$7.3 billion 4.8 months of imports cover, together with IMF precautionary arrangements at US$1.5 billion.
In their previous meeting held in September, MPC lowered the CBR for the second time in 2016 by 50 basis points to 10 percent on account of the persistent slowdown in private sector credit growth, which stood at 5.5 percent against the CBK target of 18.3 percent.
