CBK retains signal rate at 8.50%

The central bank has maintained the signal central bank rate at 8.50%. The Bank’s Monetary Policy Committee (MPC) said the current monetary policy measures, coupled with the favourable impact of lower international oil prices continued to support price stability.

In a press statement after its sitting yesterday, it said however that the divergent policy paths taken by the major advanced economies may cause volatility in the global foreign exchange markets which could lead to spill-over effects on the domestic foreign exchange market and domestic inflation that should therefore be monitored.

The MPC will continue keeping tabs on the key macroeconomic aggregates and any emergent risks from the external and domestic economies that may impact on price stability. Month-on-month inflation declined from 6.02% in December 2014 to 5.53% in January 2015 mainly reflecting continued moderation in the prices of fuel, but has risen slightly as predicted to 5.61% in February 2015. However, the fall in fuel prices was partly offset by a rise in the prices of some food items.

The month-on-month non-food-non-fuel inflation declined from 3.65% to 3.43% during the period, indicating that there were no significant demand-driven inflationary threats to the economy. The exchange rate of the Kenya Shilling against the US Dollar maintained its stable trend despite volatility in the global foreign exchange markets. These were partly occasioned in anticipation of further lowering of interest rates in the Eurozone following the introduction of Quantitative Easing (QE) by the European Central Bank (ECB) and the ending of the Swiss Franc cap against the Euro. The regional and major international currencies have continued to depreciate faster than the Kenya Shilling against the US Dollar and have also exhibited more volatility.

The Kenya Shilling has continued to benefit from the strong investor confidence recently boosted by the approval of the International Monetary Fund (IMF) supported precautionary facility. This facility blends the Stand-By Arrangement (SBA) and the Stand-By Credit Facility (SCF) amounting to USD688.3 million and will allow the Government to access resources from the IMF to alleviate balance of payments shocks to the economy. In addition, the continued decline in international oil prices has resulted in a lower oil import bill and eased pressure on the exchange rate.

Investors in the private sector have continued showing confidence in the economy, with the 12-month growth in private sector credit standing at 21.8% in January this year. The diaspora remittances have averaged USD122.65 million per month in the six months to January 2015, compared to USD110.84 million per month in a similar period to January 2014. Activity at the Nairobi Securities Exchange (NSE) remains buoyant with the NSE-20 share index rising from 4,971 at the end of December 2014 to 5,468 as at 25th February 2015.

Furthermore, the MPC Market Perception Survey conducted in February 2015 showed that private sector firms expect inflation and the exchange rate to be stable, and growth to be stronger in 2015.