CBK tipped to retain policy base rate at 9pc

The Central Bank of Kenya’s (CBK) policy body will hold its meeting today with inflation the key issue on the table.

Analysts widely expect the Monetary Policy Committee (MPC) to leave the benchmark lending rate unchanged despite concern over prices.

The CBK held the Central Bank Rate at nine per cent at the November bi-monthly meeting despite a slightly weaker shilling (now resurgent) and rising prices.

“My reading is that it is time to leave it flat for now,” said Nairobi-based analyst Deepak Dave.

“There are a few indications of economic pick-up and generally spending by consumers is only just picking up.”

Stephanie Kimani, a research economist at Commercial Bank of Africa (CBA), concurred. “I see the MPC maintaining its current accommodative stance supported by a benign inflation outlook,” she said. Razia Khan, chief economist for Africa at Standard Chartered Bank #ticker:SCBK, said in a research note that she expects the MPC to the rate hold steady.

“While lower oil prices will provide the CBK with some near-term respite, we expect the central bank rate to be kept on hold until quarter three when recovery in lending may provide the rationale for a new tightening cycle,” she said. In holding the base rate steady in its November meeting, the MPC cited October’s fall in inflation to 5.3 per cent from 5.7 per cent in September, mainly driven by lower food prices that offset the increase in fuel costs.

The MPC noted that it was taking more time for monetary policy actions to impact on bank customer loans. Banks continue to shy away from lending due to legal caps on borrowing rates.

The MPC also cited the six per cent GDP growth in the first half of the year, compared to 4.7 per cent in the first half of 2017, as reason to keep the rate unchanged. In addition, the CBK said, private sector credit growth improved to 4.4 per cent in the 12 months to October from 3.9 per cent in September, while the banking sector remained resilient with the ratio of gross non-performing loans to gross loans falling to 12.3 per cent in October from 12.7 per cent in August.