Central Bank of Kenya’s policy arm has chosen not to intervene to tame inflationary pressures as it maintained its base lending rate on Monday. The Monetary Policy Committee (MPC) retained the benchmark rate at 10 despite month-on-month inflation hitting a five-year high, saying core inflation has remained stable at below 5%.
Core inflation, also known as non-food-non-fuel inflation, is less volatile than month-on-month inflation which is affected by changes in cost of the commodities. “Non-food-non-fuel (NFNF) inflation remained stable below 5 per cent, suggesting that demand pressures and pass-through effects of high food prices are muted,” said Committee chairman and CBK governor Patrick Njoroge in a statement.
The MPC’s move also comes as a relief to borrowers as the maximum cost of loans will remain unchanged. Dr Njoroge cited a stable forex market, a narrower current account deficit and exchange reserves that are “at all-time high levels”, thus continuing to cushion the economy from unforeseen shocks hence holding the base rate unchanged.
“The MPC therefore decided to retain the Central Bank Rate (CBR) at 10 per cent. The Committee will continue to closely monitor developments in the domestic and global economies, and stands ready to take additional measures as necessary,” said Dr Njoroge.
The governor said the MPC had evaluated available data on the impact of capping interest rates saying the number of loan applications increased by 23.4 per cent between August 2016 and April 2017.
“On the slowdown in private sector credit growth, which was largely due to factors in trade, manufacturing, real estate, and private households, the Committee noted that credit to private households, manufacturing, and real estate had picked up in March and April 2017,” said Dr Njoroge.
He said the value of loan applications decreased by 18.3 per cent, suggesting smaller size of loan applications.
“The number of loan approvals increased by 35.7 per cent while their value decreased by 16.3 per cent,” Dr Njoroge said.
The benchmark rate has remained unchanged at 10 per cent since last September, effectively pricing lending rates at a maximum of 14 per cent in line with the capping of interest rates at four percentage points above the Central Bank Rate (CBR).
Kenya’s annual inflation accelerated for the fourth consecutive month to its highest level in five years last month following supply constraints. Headline inflation has s**t up to 11.5%, well above the preferred ceiling of 7.5 per cent. “Nevertheless, the recent rains and interventions by the Government are expected to provide some relief,” said Dr Njoroge. (Copyright: Business Daily)