Central Bank Rate Retained At 7% To Keep Stimulating The Economy

Central Bank Rate: The Central Bank of Kenya has left its benchmark interest rate unchanged as it continues to monitor recovery from the Covid-19 economic disruption. The last time it cut the rate by 125 basis points to stimulate credit uptake was during March-April 2020 partial lockdown period as the pandemic started spreading.

The decision to keep the benchmark Central Bank Rate interest rate at 7% after the Monetary Policy Committee (MPC) on 28^th July was largely based on the fact that leading indicators for Kenya’s economy point to a relatively strong GDP recovery in the first half of 2021, mainly supported by strong performance of construction, information and communication, education and real estate.

“The Committee noted that inflation expectations remained well anchored within the target range, and the economy continued to operate below its potential level,” said Central Bank of Kenya Governor Dr Patrick Njoroge, who is the chairman of the MPC, the inhouse organ that advises on monetary policy. “The MPC concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 percent.”

Dr Njoroge said the economy is expected to rebound in 2021, supported by the continued reopening of the services sectors including education, recovery in manufacturing, and stronger global demand. He said the Private Sector Market Perceptions Survey of CEOs and the Survey of Hotels revealed optimism about economic growth prospects for 2021, attributed to continuing vaccinations and easing of COVID-19 containment measures.

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Additionally, business managers were optimistic about the expected implementation of measures in the 2021/22 Budget, including the economic stimulus and investment in infrastructure.

Continued uncertainties over the pandemic, increased taxes and heightened political activity remain concerns over economic growth.

The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios, while growth in private sector credit increased to 7.7% in June 2021, from 6.8 percent in April, a clear indication of a rebounding economy.

The MPC will meet again in September 2021.

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