Markets & Finance

Central bank leaves policy rate steady bucking prediction

The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) in a surprise move Monday retained the policy interest rate at 11.5 per cent, despite widespread expectation it would begin to nudge down the elevated price of money. MPC noted bank rates had started falling.

In retaining the Central Bank Rate (CBR), the MPC cited risks from inflation saying it wanted to enhance the credibility of the policy stance, which has been to tighten in order to avoid a weakening of the shilling.

“The MPC decided to retain the CBR at its current level of 11.5 per cent, to continue to anchor inflation expectations and enhance the credibility of its policy stance,” said the MPC chair and CBK governor Patrick Njoroge in a statement.

Mr Njoroge also pointed out that inflation was at the recommended 2.5 to 7.5 per cent range while banking sector was stable and the foreign exchange reserves were adequate. The International Monetary Fund had also given Kenya a clean bill of health in the running of the economy.

READ: Citi predicts Central Bank Rate cut on stable shilling and low inflation

Mr Njoroge however said there remained some global economic uncertainties although he added these were minimal in view of the diversification of export products and markets.

Several analysts had said they expected a lowering of the benchmark rate citing several factors. For one, the money markets have recently been quite liquid and the interest rates have declined. The interbank rate stood at an average of 3.82 per cent down last week from 4.63 per cent in the previous week.