Capital Markets

CBK faces fresh Covid-19 test in next monetary policy meeting

Central Bank of Kenya
Central Bank of Kenya. FILE PHOTO | NMG 

The Central Bank of Kenya (CBK) holds its latest monetary policy meeting Tuesday amid fears of fresh economic headwinds due to a sharp rise in the number of Covid-19 cases in Kenya.

At its last meeting on June 25, the Monetary Policy Committee (MPC) voted to keep its benchmark lending rate at seven percent judging that its current accommodative stance remained appropriate even as lenders continue to withhold credit to the private sector.

Analysts, however, expect the monetary regulator to hold the rate for a third straight month, arguing that it is likely to opt to wait and see the effect of any new measures the government introduces to contain the spread of the virus.

“Over the last two meetings, the MPC has been monitoring the impact of the previous rate cuts and we expect the committee to continue to take a wait and see approach as the effects of potential Covid-19 containment measures to be implemented by the government in the month of August,” said KCB Capital analyst Patrick Mumu in an MPC outlook note.

"We anticipate the MPC will maintain the benchmark rate at seven percent in the July meeting."


A similar assessment was made by analysts at NCBA, who said that muted inflationary pressure is likely to prevent further easing of the base rate, even though the shilling is under pressure against the dollar.

"While there is scope for further easing, the Central Bank will likely hold off any further easing," said the NCBA economists.

Cytonn Investments analysts said that they also expect a rate hold, citing the high liquidity in the money market and that the previous reduction in CRR ratio has not resulted in a significant increase in lending to the private sector.

“Furthermore, we believe that additional rate cuts will not lead to private sector growth given the reduced economic activities in Kenya’s key sectors as well as the reduced lending by banks,” Said Cytonn.

Private sector credit grew by 8.1 percent in the year to May, compared to nine percent in April, well below the central bank’s target rate of 12-15 percent deemed optimum to support economic growth.