Capital Markets

CBK holds rate meeting amid signs of economic recovery

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Central Bank of Kenya (CBK). FILE PHOTO | NMG

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Summary

  • A poll of analysts project that the CBK will hold the rate steady at seven percent, citing stable inflation even though the shilling remains under pressure in the currency exchange market.
  • The country’s year-on-year inflation in August remained unchanged from July at 4.36 percent as food prices continued to drop.

The Central Bank of Kenya (CBK) is set to hold its monetary policy meeting on Wednesday, setting the direction for the country’s financial sector as the economy continues to recover following months of difficulty occasioned by the Covid-19 pandemic.

A poll of analysts project that the CBK will hold the rate steady at seven percent, citing stable inflation even though the shilling remains under pressure in the currency exchange market.

The country’s year-on-year inflation in August remained unchanged from July at 4.36 percent as food prices continued to drop.

At its last bi-monthly meeting on July 29 the bank's Monetary Policy Committee (MPC) kept its key lending rate unchanged at seven percent, the third time in a row despite a still-challenging economic backdrop due to Covid-19.

"We expect the committee to hold the benchmark rate at seven percent, given the stable macro-economic environment," said KCB Capital research analyst Patrick Mumu.

In its last MPC meeting, the CBK reiterated that it still has plenty of firepower and “stands ready to take additional measures as necessary”.

Analysts at Sterling Capital project the MPC will hold the benchmark lending rate on the back of stable local currency outlook, despite recent pressure as well as stable inflation outlook, supported by lower food prices.

"Inflation declined and is expected to remain within the target range in the near term on account of lower food prices, the impact of the reduction of VAT and muted demand pressures," they said.

Genghis Capital analysts said they also expect a rate hold, on account of anchored inflationary expectations with recent trends pointing to disinflation.

The regulator will also be keen to support private sector credit growth, which stood at 7.6 per cent in the year to June, compared to 8.1 per cent in May, well below the ideal rate of 12-15 per cent needed to support economic development.

The markets are also waiting to see if the CBK will roll out extra support for the economy as most central banks are doing.