Central Bank of Kenya Governor Patrick Njoroge.

The Monetary Policy Committee is set to meet on Monday amid projections it is unlikely to cut the Central Bank Rate (CBR), which currently stands at 10.0%.

During its last meeting on November 22 last year, the MPC retained the Central Bank Rate (CBR) at 10.0% noting that month-on-month overall inflation fell to 5.7% in October 2017 from 7.1% in September 2017, thereby remaining within the Government target range.

It attributed the decline largely to lower food prices, particularly for cabbages and Irish potatoes.

The decrease in food prices offset the increases in fuel and electricity in October. Non-food-non-fuel (NFNF) inflation remained below 5 percent, demonstrating that demand pressures are muted. Despite an increase in international oil prices which has exerted upward pressure on fuel prices, improved weather conditions and the extension of the maize subsidy are expected to continue supporting a further lowering in food prices and a decline in overall inflation in the near term,” Central Bank of Kenya Governor Patrick Njoroge said at the time.

On interest rates regime, Njoroge said the MPC continues to monitor the impact of the interest rate caps on the effective transmission of monetary policy.

“The CBK will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary,” he said in a statement.

However, according to Reuters, despite the overall easier projection, some analysts say the MPC is unlikely to change rates at all unless the government amends the law on the percentage commercial banks can charge its clients, a move which has automatically tightened the market and shrunk the potential pool of borrowers.

An earlier Reuters survey had projected that Kenya will cut the CBR by 100 basis points to 9%.  Various banks led by umbrella body, the Kenya Bankers Association have been pushing for a cut, saying the rate cap law has  exacerbated the decline in bank credit to the private sector. Banks are required not to charge more that 4% above the CBR.

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“Credit to the private sector is nearly grinding to a halt, with the most affected being unsecured personal loans. Given the demonstrable association between credit growth and performance, the overall economy is adversely affected. In essence, the law is aggravating an already delicate economic performance,” KBA said in a statement in October last year, one year since the Banking (Amendment) Act 2016 came into force.

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