Eyes on weak shilling, inflation as Njoroge holds first MPC meeting

What you need to know:

It remains to be seen whether CBK governor Patrick Njoroge will ignore weakening of the shilling and inflationary pressure as temporary movements that can be handled by market forces or resort to a raft of monetary tools at his disposal.

The policy inclination of new Central Bank of Kenya governor Patrick Njoroge will be put to test next week when he presides over his first Monetary Policy Committee (MPC) meeting following his official appointment last week.

Analysts say Dr Njoroge must use next Tuesday’s MPC meeting to chart out a clear policy direction to tame the slide of the shilling and help sustain the Jubilee Coalition’s target of single-digit inflation.

Last week, the CBK announced President Kenyatta’s official appointment of the new team, starting with Dr Njoroge as governor, board chairman Jairus Mohammed Nyaoga and Ms Sheila M’Mbijjewe as the second deputy governor.

“Their four- year term of office is effective from 19 June, 2015… The MPC will hold its next meeting on Tuesday, 7th July, 2015,” the bank said in a statement posted on its website on Friday.

It remains to be seen whether the US-educated economist will ignore weakening of the shilling and inflationary pressure as temporary movements that can be handled by market forces or resort to a raft of monetary tools at his disposal.

READ: New CBK governor Patrick Njoroge assumes office

In the MPC meeting held last month under chairmanship of first deputy governor Haron Sirima, the CBK raised its benchmark lending rate to 10 per cent from 8.50 per cent on June 9, hoping to end 42-month decline of shilling.

The shilling has apparently defied that policy move, rising close to the psychological 100-unit mark against the US dollar last week.

Similarly, while the upward push in the price of items to a break at the end of May when inflation dropped to 6.87 per cent, from 7.03 per cent in April, analysts believe the policy direction taken by Dr Nyoroge must anticipate an expected surge in oil prices.

Ms Razia Khan, head of Africa Research at Standard Chartered Bank Plc, told the Business Daily in an earlier interview: “The first MPC meeting will be important because it will set the tone for the new governor’s tenure at the CBK, and investors will gain an understanding of what they should expect,” she said.

The Jubilee Coalition hopes to keep inflation at single digit throughout its first term, which ends in 2017.

A weaker shilling, however, raises cost of imports including petroleum products and machinery, thus piling inflationary pressure.