News Column

CBK Retains Lending Rate At 8.5 Percent Yet Again

May 1, 2014

Kennedy Kangethe

The Central Bank of Kenya (CBK) has retained its lending rate 8.5 percent in a bid to continue anchoring inflationary expectations and sustain price stability.

In the latest meeting, the CBK's Monetary Policy Committee the Monetary Policy Committee (MPC) concluded that the monetary policy measures had continued to deliver the desired price stability with the monetary policy path remaining credible despite the slight rise in overall inflation.

The committee noted that the overall month-on-month inflation increased slightly from 6.27 percent in March 2014 to 6.41 percent in April 2014 largely reflecting an increase in transport costs.

"The monetary policy operations adopted coupled with increased foreign exchange inflows through Diaspora remittances supported exchange rate stability. Specifically, the Kenya Shilling to US Dollar exchange rate continued to fluctuate within a narrow range in April 2014," CBK Governor Njuguna Ndung'u who chairs the MPC said in a statement after the meeting on Wednesday.

The CBK increased its level of usable foreign exchange reserves from USD 6,213 million (Sh542 trillion) at the end of March 2014 to USD 6,339 million (Sh555 trillion) at the end of April 2014.

"The build-up in reserves largely reflected the sale of foreign exchange to CBK by commercial banks," Ndung'u said.

The banking sector remains solvent and resilient as the annual growth in private sector credit stood at 22.66 percent in March 2014 compared with 21.46 percent in February 2014 which was an indication of a pickup in domestic economic activity and was supported by the continued integration of the mobile phone financial services and banking platforms.

The committee noted that the increased investor appetite for longer-dated domestic debt instruments has continued to lower refinancing risk in the domestic debt profile.

"The private sector credit growth is being monitored carefully to ensure that it does not trigger any demand inflation pressure or adverse inflationary expectations. In addition, the ratio of non-performing loans to gross loans decreased from 5.8 percent in February 2014 to 5.6 percent in March 2014 indicating a lowering in credit risk. A combination of declining credit risk and rising private sector growth supports private investment and growth," he said.

Activity at the Nairobi Securities Exchange (NSE) remained buoyant where the NSE-20 index stood at 4,945.78 at the end of March 2014 from 4,933.44 at the end of February 2014 while Diaspora remittances rose to their highest level so far, reaching USD 119.59 million in March 2014 compared with USD 110.42 million in February 2014 attributed to the strengthening global economy.

The private sector expects a strong growth in 2014 with inflation and the exchange rate remaining stable for the remainder of 2014 according to the MPC Market Perception Survey conducted in April 2014.

On the global scene, the committee noted that the global economy was projected to grow from an estimated 3.0 percent in 2013 to 3.6 percent in 2014 largely reflecting the continued recovery of advanced economies.

"Growth in the Eurozone had turned positive partly reflecting a pickup in domestic demand. Similarly, growth in Sub-Saharan Africa was projected to accelerate from 4.9 percent to 5.4 percent in the period. This outlook for the global economy is expected to benefit Kenya's exports and support exchange rate stability," he added.

However, the heightened Russia-Ukraine political situation coupled with the persistent instability in the Middle East and North African region remains a threat to the stability of international oil prices and the overall price stability objective.

The latest data from the KNBS showed that the financial intermediation sector grew by 7.2 percent in 2013 compared with 6.5 percent in 2012. This contributed significantly to the 4.7 percent overall economic growths in 2013.

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Source: AllAfrica

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