Central Bank holds fire on interest rates

Central Bank of Kenya Governor Patrick Njoroge during a press conference at the Central Bank Kenya on the Monetary Policy Committee decisions as at January 21, 2016. During the last meeting in January, CBK held the base lending rate and the Kenya Banks Reference Rate steady at 11.5 per cent and 9.87 per cent respectively. PHOTO | DIANA NGILA | NATION MEDIA GROUP

What you need to know:

  • A majority of bankers and economists had predicted the MPC could cut the key lending rate owing to the stability of the shilling and lower inflation.

The Central Bank of Kenya advisory committee on Monday voted to retain the benchmark lending rate at 11.5 per cent for the sixth time in a row in a move that was largely seen to defy market expectations.

A majority of bankers and economists had predicted the Monetary Policy Committee (MPC) could cut the key lending rate owing to the stability of the shilling and lower inflation.

But in keeping the Central Bank Rate (CBR), the policy benchmark flat, the MPC cited a need to anchor inflation and ensure stability in the financial sector.

“…The committee noted that the monetary policy measures currently in place have continued to moderate inflation expectations. The MPC decided to retain the CBR at its current level of 11.5 per cent, to continue to anchor inflation expectations and enhance the credibility of its policy stance,” said a statement signed by CBK governor and MPC chairman, Dr Patrick Njoroge.

In a pre-MPC outlook, several analysts interviewed by the Daily Nation had forecast a rate cut citing less pressure on the CBK’s Monetary Policy Committee as inflation eased to 6.8 per cent year on year in February from 7.8 per cent in January and that there was some fiscal consolidation on the cards.

The team defied this position, citing the need to maintain overall price and financial sector stability.

“The banking sector remains stable and resilient. However, the CBK continues to closely monitor the sector, particularly concerning credit risk as reflected in an increase in non-performing loans.

‘‘Liquidity in banks and its distribution has normalised, but further work is needed to strengthen liquidity management and operations of the interbank market,” it said.

During the last meeting in January, the Central Bank of Kenya (CBK) held the base lending rate and the Kenya Banks Reference Rate steady at 11.5 per cent and 9.87 per cent respectively.

And last November, the committee voted to retain the benchmark lending rate at 11.5 per cent, backing the regulator’s position that commercial banks should not raise lending fees.

The rate has been retained since early July. It was first raised in May to 10 per cent, after remaining at 8.5 per cent since April 2013.

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