Central Bank of Kenya keeps interest rate at 11.50% in March

NAIROBI, Kenya, Capital Markets in Africa — The Monetary Policy Committee (MPC) met on March 21, 2016 to review market developments and the impact of its previous monetary policy decisions. The MPC decided to retain the Central Bank Rate (CBR) at its current level of 11.5 percent, to continue to anchor inflation expectations and enhance the credibility of its policy stance. 

The Bank noted that month-on-month overall inflation fell to 6.8 percent in February 2016, from 7.8 percent in January, thereby returning to within the Government’s target range of 2.5 to 7.5 percent. This decline was largely driven by developments in food and fuel prices. The month-on-month non-food-non-fuel (NFNF) inflation rose to 5.9 percent in February from 5.5 percent in the previous month, reflecting the revised excise tax on alcoholic beverages and tobacco products, implemented in December 2015. The contribution to NFNF inflation of the CPI category “alcoholic beverages, tobacco and narcotics” remained unchanged at 1.1 percentage points, mainly due to the revised excise tax, the MPC’s commented in the press release.

Furthermore, the Bank said that the Kenyan shilling had been generally stable, ins spite of volatility in global markets, as the currency is supported by a decreasing current account deficit, solid remittances inflows and a reduced oil import bill. In the MPC’s communique, Central Bank of Kenya emphasized the increase of its foreign reserves to 4.7 months of import cover and the fact that the country secured a new USD 1.5 billion precautionary arrangement with the IMF in March as further positive developments.

On the financial stability, the central bank hinted that the banking sector remained stable, while recent surveys point to continued optimism in Kenya’s private sector. According to the Bank, the weakening global economic outlook will only have a limited impact on Kenya’s economy, thanks to its level of diversification and financial stability.