Capital Markets

Experts split on key bank rate decision

fruits seller
A fruits seller in Molo town. A fall in the price of maize eased the cost of living in February. FILE PHOTO | NMG 

Analysts are divided over the likelihood of central bank’s rate-setting Monetary Policy Committee (MPC) keeping the benchmark number at nine per cent at its meeting scheduled for Wednesday.

During the last sitting on January 28, the MPC retained its benchmark signal rate at 9.0 percent, sparing borrowers higher cost of loans.

Two of the three analysts interviewed tipped the MPC to keep the key rate at nine per cent while one expects a cut of about 50 per cent.

Stanbic Bank Regional Economist for East Africa Jibran Qureshi said there was a likelihood of a retention noting the troubled transmission of monetary policy in the current environment but also stability of key macro-economic indicators.

“No change from us due to the risk of further perverse reaction to private sector credit growth from a cut in the rate cap environment,” said Mr Qureshi in an interview.


“There is no need to do anything different right now. Growth is doing well and core inflation is in check.”

Cost of living

A fall in the price of maize, Kenya’s staple food, helped to ease the cost of living to a six-month low in February to 4.14 percent from 4.7 percent in January and 5.7 percent in December. Those who are looking at a cut cited the relative strength of shilling and low inflation.

“I am hoping for 50 basis points cut, but expecting 25 basis points cut at least,” said Deepak Dave, the founder of Riverside Capital Advisory.

“A cut would be justified, with the strength of the shilling allowing some leeway for a loosening of credit; inflation is tame given the drought; and record big bank profits showing that cost-of-money spreads are too wide.” In a pre-MPC note Commercial Bank of Africa (CBA) said it is looking at a retention citing stable inflation and exchange rate. “The stability in markets over the last couple of months reveals an economy at its ‘sweetest spot’, at least on the face of it. Inflation and the exchange rate are stable and forecasts reveal a fair level of confidence in the economy,” said CBA. “While the impact of this stability on businesses has been debatable, the enviable posture reduces pressure on the MPC to make any policy adjustments, at least in the near term.”

CBA noted that while the said macroeconomic stability may still support further easing, reduced prospects of stimulating private sector lending and potential adverse effects of a further surge in liquidity may still support a neutral call on the current stance.