Kenya leaves rates on hold waiting for recent hikes to take full effect

By bne IntelliNews August 6, 2015

The Monetary Policy Committee (MPC) of Kenya’s central bank decided on August 5 to maintain the benchmark interest rate at 11.5% after hiking it by a total of 300bp in June and July amid heightened inflationary pressures due to a sharp depreciation of its shilling currency and rising fuel prices.

“The Committee concluded that the measures taken in the previous meetings were yet to be fully transmitted to the economy,” the Central Bank of Kenya (CBK) said in a statement.

Many analysts had expected CBK to lift further the Central Bank Rate (CBR) in a bid to strengthen the shilling in view of the global strength of the US dollar.

“The foreign exchange market was volatile in early July 2015, but has stabilised reflecting in part the impact of monetary policy measures,” CBK said, underscoring that its market interventions have stemmed the volatility and resulted in tight liquidity conditions.

The CBK’s foreign exchange reserves stood at $6.41bn at the end of July, a level deemed by the bank as an adequate buffer against short-term shocks together with the $688.3mn precautionary facility with the International Monetary Fund (IMF).

A slowdown in food costs growth cut Kenya’s headline annual inflation to a four-month low of 6.62% in July from 7.03% in June.

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