The Central Bank of Kenya (CBK) on Wednesday resolved to retain the base lending rate at 13 per cent attributing the decision to steady inflation rates.
In a statement, the Central Bank explained that this decision was reached at after the MPC, on which CBK Governor Dr. Kamau Thugge sits concluded that previous interventions had reduced inflation to the desired level, stabilised the currency and controlled future inflation expectations.
"The MPC concluded that the current monetary policy stance will ensure that overall inflation remains stable around the mid-point of the target range in the near term, while ensuring continued stability in the exchange rate," the press statement read.
In particular, CBK observed that the measures in question had lowered overall inflation to the mid-point of the target range, remaining at 5.1 per cent in May 2024 against 5.0 per cent in April.
Further, the MPC noted that the new monetary policy framework adopted on August 9, 2023, had improved the interbank market, narrowed interest rate gaps, and made monetary policy more effective.
The MPC further announced that it will continue to closely monitor the impact of the policy measures as well as developments in the global and domestic economy and will take further action as necessary.
This position is based on MPC's calendar which shows the committee will meet again in August 2024.
Observations
CBK pointed out that the rate of inflation for food commodities stood at 6.2 per cent in May compared to 5.6 per cent in April, reflecting increases in prices of specific food items such as vegetables largely due to supply disruptions occasioned by the recent heavy rains and flooding in some parts of the country.
Despite the flooding in various parts of the country, the CBK bulletin forecasted that the economy is expected to remain strong in 2024, supported by the services sector and projected strong performance by the agriculture sector.
The report also pointed out that fuel inflation dropped to 7.8% in May from 8.3% in April due to lower gas and electricity prices.
Meanwhile, non-food, non-fuel inflation also fell to 3.4% from 3.6%, due to monetary policy measures.
Consequently, overall inflation is expected to stay stable, aided by a steady currency, good food supply due to favorable weather, stable fuel prices, and ongoing effects of monetary policy.
