Regulator likely to hold key rate at MPC meeting

What you need to know:

Analysts say the shilling shows resilience and inflation under control
Kenya’s annual inflation rose to 8.04 per cent last month from 7.47 per cent in July
In the previous meeting held on July 17, the maximum cost of loans remained unchanged providing relief for millions of borrowers.

The Central Bank of Kenya (CBK) advisory committee meets next week with analysts projecting it will leave the benchmark lending rate unchanged.

Ahead of the Monetary Policy Committee (MPC), analysts interviewed forecast the rate to remain steady as the shilling shows signs of resilience, with the country’s foreign reserves rising gradually. The inter-bank rate is also showing stability.

“I expect the Central Bank MPC to stay on the sidelines and leave interest rates unchanged,” said Nairobi-based independent analyst Aly Khan Satchu.

Cost of loans

In the previous meeting held on July 17, the maximum cost of loans remained unchanged providing relief for millions of borrowers.

The MPC maintained the benchmark rate at 10 per cent, saying the current monetary policy stance had reduced the threat of money-driven inflation.

“My projection is for the rate to remain unchanged. There has been no major changes in the macro-economic space since the last meeting—inflation is steady, currency volatility low and market liquidity within good range,” said Francis Mwangi, head of research at Standard Investment Bank on the September 18 meeting.

Kenya’s annual inflation rose to 8.04 per cent last month from 7.47 per cent in July, above the government’s preferred band of 2.5 to 7 per cent.

READ: Rising food costs push August inflation to 8.04 pc

The higher rate of inflation in August was attributed to an increase of 1.04 per cent in the food and non-alcoholic drinks index compared with July.

“Excluding food inflation confirms that we do not have an inflation problem.
The currency remains outstandingly well-behaved and its performance an affirmation of the central bank’s bona fides in this regard,” said Mr Satchu.

Shy away

Banks though continue to shy away from lending due to caps on borrowing rates.

Mr Satchu said while the economy is slowing down, with private sector credit growth at a standstill, interest rate caps have interfered with monetary transmission and a rate cut to stimulate the economy is likely to get “muddied.”

Growth of credit to the private sector fell for the eighth straight month in May following the introduction of the law capping rates in September last year.