Central Bank of Kenya Retains CBR at 11.5% and KBRR at 9.87%

Nairobi, Kenya, Capital Market in Africa — The Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) met on Wednesday 20 January 2016 to review market development and the outcome of its previous monetary policy decision.  The MPC decided to keep the Central Bank Rate (CBR) at 11.5 percent for the fifth time in a row. The rate has been retained since early July. It was first raised in May 2015 to 10 per cent, after remaining at 8.5 per cent since April 2013.

The central bank also retained the Kenya Banks’ Reference Rate (KBRR) at its current level of 9.87 per cent.

In keeping flat the benchmark lending rate, the MPC cited a need to anchor inflation and ensure stability in the financial sector.  The released statement signed by MPC chairman and the central bank Governor Patrick Njoroge, further justify the decision by stating that:

 “The foreign exchange market has remained stable since November 2015, despite the rise in U.S. interest rates, impact of the slowdown in China, and volatility in other global financial markets. Stability in the foreign exchange market continues to be supported by a narrowing current account deficit largely due to a lower import bill for petroleum products, recovery in tourism, tea and horticulture exports, and diaspora remittances. CBK’s foreign exchange reserves which currently stand at USD 7,023.7 million (equivalent to 4.5 months of import cover), together with the Precautionary Arrangements with the International Monetary Fund (IMF), continue to provide an adequate buffer against short-term shocks”.

Governor Njoroge’s statement also  noted that while the three-month annualised inflation increased as a result of the new excise taxes, there were no evident adverse demand pressures in the economy. Annual inflation rate accelerated to 8.01 per cent in December of 2015 compared with 7.3 per cent in the previous month, which was above market expectations, according to data by the Kenya National Bureau of Statistics.

In conclusion, the MPC stated that the economy remained strong in the third quarter of 2015, posting a growth rate of 5.8 percent compared to 5.2 percent in a similar period of 2014. In addition, Significantly, the central bank Market Perception Survey of January 2016, showed increased optimism for improved business conditions and stronger growth in 2016, largely due to strengthened macroeconomic environment, continued public investment in infrastructure, lower oil prices, improving tourism performance, and a higher country profile.