Central Bank lowers policy rate

The Central Bank of Kenya’s Monetary Policy Committee (MPC) lowered the Central Bank Rate (CBR) for the first time in nine month, citing  a drop in inflation and stability of the shilling in the past three months.

“It concluded that there was policy space for an easing of monetary policy while continuing to anchor inflation expectations. The MPC therefore decided to lower the CBR by 100 basis points to 10.5 percent. “, read the statement in part.

This key policy rate informs the rate at which the bank can lend to financial institutions and is reviewed every month to reflect the country’s economic standing.

The statement said that the Kenyan growth outlook remains stable despite the global trade facing various glitches. It noted that the outlook for global economy has deteriorated in recent months due to weaker growth prospects in advanced and emerging market economies. Uncertainties in the global financial markets have increased due to risks posed by, among other factors, slower growth in China, the timing of the U.S. Fed’s next increase in interest rates, and the outcome of the referendum on U.K. membership of the European Union (Brexit).

However, the growth outlook for Kenya’s main trading partners in the region remains strong, suggesting better prospects for exports performance.

Inflation stood at 5.3 percent, the lowest in two years, indicating a stabilization of the economy. This decline was largely due to reduction in the prices of food items and fuel.

Foreign exchange reserves of the Central Bank of Kenya currently stand at $7,688.3 million sh769 billion being five times the country’s monthly import bill  up from $7,377.2 million, equivalent to 4.7 months of import cover at the end of March 2016. The bank was buoyant that these reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF) will continue to provide adequate buffers against short-term shocks.

The bank said that the coordination between monetary and fiscal policies continues to support macroeconomic stability. It was optimistic that the National Government budget deficit is expected to narrow soon thereby easing pressure on interest rates.

A statement from the bank further stated that the banking sector is resilient and has begun to stabilise following the successful and quick reopening of Chase Bank, which has enhanced confidence in the sector.



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