MPC faces inflation question at its January meeting

The Central Bank of Kenya (CBK) is set to hold its monetary policy meeting tomorrow, with eyes on its take on the rising cost of food that has driven inflation to an eight month high.

The prices of key food items have climbed significantly over the past couple of months, adding pressure on cash-starved households that are still reeling from the economic hit of the Covid 19 pandemic.

Data from the Kenya National Bureau of Statistics shows that the year-on-year rise in cost of food stood at 7.2 per cent last December, the highest since June 2020.

At its last bi-monthly meeting on November 26, the inflation targeting MPC shrugged off heightened global uncertainties to retain its benchmark lending rate at seven percent for the fifth time in a row.

The MPC said then its decision was backed by optimism over the performance of the economy in the second half of the current fiscal year.

MPC chairman and CBK governor Dr Patrick Njoroge said then that key indicators for the second half of last year pointed to a strong recovery in economic activity following the disruptions witnessed in the second quarter of 2020.

Analysts say though that while inflationary pressure is likely to be at the forefront of the MPCs thinking, the base rate is unlikely to change, given the need to also stimulate economic growth.

"The macro-economic indicators point to a neutral policy stance and hence we expect the committee to hold the benchmark rate at seven percent,” said KCB Capital analyst Patrick Mumu in a note.

Analysts at Sterling Capital said that while oil prices have been on the rise and together with the weakening of the shilling will likely increase inflationary pressure, they still expect the rate to be held at the current level.