The MPC cited tamed inflation now at 6.09 percent for August, a stable exchange rate that settled between the Sh83.90 to Sh84.32 band last month/FILE
The MPC cited tamed inflation now at 6.09 percent for August, a stable exchange rate that settled between the Sh83.90 to Sh84.32 band last month and fairly stable short term interest rates as major contributing factors to the rate reduction.
The foreign exchange reserves position of the Central Bank of Kenya (CBK) stood at $5.14 billion or 4.2 months of import cover at the end of August this year.
The shilling continued to slide against the dollar on Wednesday, as importers and inter-bank players bought dollars ahead of the rate announcement. However, the cut is likely to pile pressure on the local currency.
Most analysts interviewed by Capital FM News predicted a cut averaging 250 basis points, given positive indicators such as the 91-Day Treasury Bills rate standing at 8.2 percent.
The committee said that the credit risk in the country remains low as reflected by the ratio of gross non-performing loans to total loans remaining unchanged at 4.5 percent between June and July 2012.
Going forward, the MPC acknowledged that there remain risks to the positive indicators including vulnerability to international oil prices and any likely impact of drought affecting world food prices.
In addition, the slowdown in global economic growth was also noted to have a dampening effect on both domestic growth and the balance of payments, which the CBK will continue to monitor.
Under the statement theme “Continuing to Consolidate Monetary Policy Gains to Support Economic Activity” the MPC clearly showed its focus remains on ensuring the country’s policy environment remains strong.
The latest sovereign credit rating by Fitch Ratings pegged Kenya’s rating at “B+ with stable outlook.”
All eyes will now shift to commercial banks to see a further cut in interest rates offering reprieve to borrowers in the coming months.
About The Author
