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CBK Signals Drop In Cost Of Living, Retains Interest Rate At 10.5%

Inflation is already within the target band and expected to decline further as food prices seen to decline

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The Central Bank of Kenya Monetary Policy Committee (MPC) has retained the Central Bank rate (CBR), Kenya’s signal interest rate at 10.5%, citing a fairly stable inflation regime. This leaves the cost of credit to play within the same range as commercial lenders use the CBR as guide to price their loans besides factoring in other internal and external factors.

The MPC noted that inflation “is already within the target band” and is expected to decline further as food inflation is expected to come down. The Committee also noted that inflationary pressures had eased, with non-food non-fuel (NFNF) inflation declining.  The MPC further noted that the impact of the tightening of monetary policy in June 2023 to anchor inflationary expectations was still transmitting in the economy.

The Monetary Policy Committee (MPC), led by newly appointed Central Bank of Kenya Governor Kamau Thugge, met on 9th August 2023, against a backdrop of continued global uncertainties, high but easing inflationary pressures, a weak global growth outlook, geopolitical tensions, and measures taken by authorities around the world in response to these developments. The MPC reviewed the outcomes of its previous decisions and measures implemented to mitigate the adverse economic impact and financial disruptions.

Kenya’s inflation rate declined to 7.3% in July 2023 from 7.9 % in June, driven by lower food and non-food non-fuel (NFNF) inflation. The inflation rate retreated to the target range of 5 ± 2.5% . Food inflation eased to 8.6% in July from 10.3% in June, reflecting declines in prices of key vegetable and non-vegetable food items following improved supply attributed to the long rains, and lower global food prices.

Fuel inflation rose to 14.5% in July from 12.9% in June, mainly reflecting the
impact of the increase in electricity prices and implementation of the 16% VAT on
petroleum products. Nevertheless, fuel inflation was moderated by lower prices of cooking gas following the zero-rating of VAT on liquefied petroleum gas (LPG).

“Overall inflation is expected to moderate further in the near term, supported by lower food prices attributed to improving supply of key food items particularly maize, and the implementation of Government measures to improve the supply of sugar through imports,” the MPC said.

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GDP data for the first quarter of 2023 showed continued strong performance of the Kenyan economy, with real GDP growing by 5.3%. “This performance reflects a strong rebound in the agriculture sector due to favourable weather conditions and resilient performance of the services sector.

Despite the global uncertainties, the economy is expected to continue to strengthen in 2023, supported by resilient services sector, the rebound in agriculture, and implementation of measures to boost economic activity in priority sectors by the Government.

The committee will meet again in October 2023.

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KALU MENGOhttp://www.businesstoday.co.ke
Kalu Mengo is a Senior Reporter With Business Today. Email: [email protected]
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