The Central Bank of Kenya. The Monetary Policy Committee (MPC) has retained the policy rate at 9.50 per cent to contain risks to inflation and the high current account deficit. File
The Monetary Policy Committee (MPC) has retained the policy rate at 9.50 per cent to contain risks to inflation and the high current account deficit.
In retaining the Central Bank Rate (CBR) at the same level, the MPC considered that oil prices were rising while Kenya’s growth prospects were threatened by the eurozone recession and a slow recovery in the US.
It was the first retention of the rate since last July when the MPC began a series of cuts intended to pressure down lending rates in a soft economy.
In a press statement after the MPC meeting, Central Bank of Kenya governor Njuguna Ndung’u said there was also need to allow previous rate decisions to work through the economy.
The CBR was cut to 9.50 per cent in January from 11 per cent in November. Last July, the rate stood at 18 per cent, at which it had been retained since December 2011. The rate had been hiked towards the end of 2011 following spiralling inflation and exchange rate turbulence.
“The Committee noted there were risks to the macroeconomic outlook. These are attributed to the renewed upward drift in international oil prices and a weak outlook for the global economy with the expectation of a more pronounced recession in the eurozone and a slow recovery of the US economy,” said Prof Ndung’u.
He added that the “outlook, coupled with the persistent balance of payments pressures due to the high current account deficit remain a threat to the general stability of prices.”
With a series of CBR reductions, the MPC said there had been increased uptake of credit. It cited the increase by 13.8 per cent in the number of loan applications between December 2012 and January this year.
“Annual growth in private sector credit rose from 10.42 per cent in December 2012 to 11.95 per cent in January, 2013. The credit expansion during the period was within the programmed growth path and was distributed across the key sectors of the economy,” said Prof Ndung’u.
In an analysis, Razia Khan, regional head of research on Africa at StanChart Plc, said the decision to hold the rate was sound.
“Given the additional month-on-month inflationary pressure observed in January and February, we believe that the CBK is correct to pause at this stage of the cycle, to give the MPC more time to assess the impact of earlier easing,” Ms Khan said.
The MPC concluded that the banking sector remains “solvent and resilient” after considering available data and conducting stress tests on commercial banks.
“Despite the growth in the volume of loans, the ratio of gross non-performing loans to total loans increased marginally from 4.5 per cent in December 2012 to 4.6 per cent in January 2013, an indication that credit risk in the banking sector remains low,” said the governor.
The MPC was also convinced that the government’s fiscal operations were consistent with monetary policy objectives in the sense that the borrowing plan did not crowd out private sector credit.
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