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Market watchers expect MPC to retain CBR at 10pc

Central Bank of Kenya/FILE

KENYA, Nairobi, Jan 19 – Central Bank’s Monetary Policy Committee is set to review recent developments of key macro-economic variables meeting today to deliver a much-awaited interest rate decision.

Headline inflation has edged below the mid-point 5% target level since the November meeting with core inflation still subdued even after it picked up marginally in December following an uptick in demand attributed to the festivities and an ease in political risk.

In the forex market, Dollar/Shilling trade has shown a steady performance boosted by healthy foreign exchange reserves which currently stand at an approximate 7.04 Billion dollars.

Growth in private sector credit, although indicating a rebound as at October 2017, was still way off the 7.1% target for December 2017.

According to Genghis Capital, it is against this backdrop that the MPC meeting would have been expected to ease its monetary policy to support core inflation and private sector credit which would trickle down to real GDP growth.

However, the current condition is anything but ordinary as the interest rate legislation has essentially pegged lending and deposit rate to the CBR; effectively eroding the latter as a monetary policy tool.

This has left the MPC in a passive state of ‘monitoring the impact of the interest rate caps on the effective transmission of monetary policy’ if the language of recent MPC meetings is anything to go by.

Analysts at Genghis Capital are thus of the view that barring any review of the current interest rate law, the CBR will be retained at 10%.

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