Pinebridge analysts predict retention of key rate as MPC meets

Analysts at PineBridge Investments have predicted that the Central Bank of Kenya’s (CBK) policy setting organ which is meeting this (Thursday) afternoon is unlikely to lower the benchmark rate.

Joel Warutere, investment manager at the fund manager has said that their view is supported by the fact that even though food and fuel prices have been on a downward trend, inflation levels have not yet reached the short term official target of nine per cent and non-food-non-fuel inflation has been trending up.

The Monetary Policy Committee (MPC) - which sets CBK’s policy regarding interest rates - is expected to meet Thursday afternoon to review the impact of the policies it has been implementing and give an update of its outlook.

Mr Warutere, who was speaking at a quarterly review and outlook for the Kenyan economy Thursday morning, said that though the current account is running a deficit of 12.8 per cent to gross domestic product, there has not been a significant reduction on credit growth and there is still excess liquidity in the market.

Last month, the committee chose to keep the Central Bank Rate (CBR) at 18 per cent, a level it has been since December last year citing increasing non-food-non-fuel inflation, the vulnerability of the Kenyan currency to instability in the Eurozone and excess money in circulation.

“The committee may want to allow enough time for the monetary policy actions undertaken recently to make an impact,” said Mr Warutere.

He however said that the MPC is likely to cut the CBR going forward since inflation which has been trending downwards is close to the official target of nine per cent, the restrictive monetary policy is hurting economic growth and the CBK still has the option of using the Cash Reserve Ratio to maintain a restrictive policy.

In November last year, the general cost of living peaked at a high of 19.72 per cent after consistently going up for 14 months from a low of 3.21 per cent in September 2010.

Since then it has been consistently dropping due to the tight monetary policy stance the Central Bank has been implementing, a drop in global fuel prices and improved rains that have brought down the general cost of basic food stuff.