CBK retains cost of loans signal at 8.5pc

What you need to know:

The decision was in line with expectations by analysts that the MPC would leave the rate unchanged to avoid upsetting economic growth, but also not seek to escalate credit expansion to forestall any inflationary pressures.

The Monetary Policy Committee has retained the benchmark interest rate at 8.5 per cent, sending a signal to commercial banks and other financial institutions to hold their lending rates at current levels.

The MPC, which is Central Bank of Kenya (CBK’s) main policy formulating organ, cited stable inflation and exchange rate as the main reasons behind its decision.

CBK governor and MPC chairman Njuguna Ndung’u said in a press statement following the rate-setting meeting that the recent increase in inflation was temporary and that there was no demand-driven pressure for price escalation.

“There were no demand-driven inflationary pressures which would require a revision of the current monetary policy stance. The Committee, therefore, decided to retain the CBR at 8.50 per cent,” said Prof Ndung’u.

The decision was in line with expectations by analysts that the MPC would leave the rate unchanged to avoid upsetting economic growth, but also not seek to escalate credit expansion to forestall any inflationary pressures.

The economy grew by 4.7 per cent in the first half of the year against the projected annual target 5.5 per cent, on which the national budget estimates and tax revenues are based.

Prof Ndung’u noted, however, there was increase in interest rates in the interbank market caused by poor distribution of liquidity.

“CBK will also continue to work with stakeholders in order to improve the mechanisms for liquidity management,” said the governor. He added that the CBK would continue monitoring macroeconomic aggregates and emerging risks that may impact on price stability.