CBK holds the benchmark lending rate at 7%

The Central Bank of Kenya (CBK) has left the benchmark lending rate at seven percent for the fourth consecutive time noting its recent accommodative stance was having its effect in the economy.

The reserve bank which held its bi-monthly Monetary Policy Committee (MPC) on Tuesday and noted the continued improvement of the macro-operating environment following COVID-19 disruptions across April and May.

“The Committee noted that the package of policy measures implemented since March were having the intended effect on the economy, and will be augmented by implementation of the fiscal measures in the FY2020/21 Budget. The MPC concluded that the current accommodative monetary policy stance remains appropriate,” the CBK noted.

CBK has indicated leading economic indicators (LEI) point to a strong recovery in economic activity in the third quarter which ends on September 30, bolstered in part by resilience in agricultural production, the easing of COVID-19 restrictions and the normalization of exports.

From its MPC Survey held during the month, the CBK indicated optimism for an economic rebound remains going into the last quarter of the year.

“The MPC Private Sector Market Perception Survey conducted in September 2020, revealed a further improvement in optimism since July, with greater expectation of increased economic activity in the next two months as more sectors and businesses re-open with the lifting of COVID19 restrictions,” CBK added.

“Other factors that contributed to this optimism included reduced COVID-19 infection rates, expected implementation of the Government’s Economic Stimulus Programme, the resilience of the agriculture sector, recovery of private sector credit growth and a rebound in consumer spending.”

Exports in the first eight months of the year have grown by 0.8 per cent from the same time last year supported largely by receipts from tea and horticulture.

Private sector credit has meanwhile recovered growing by 8.3 per cent in 12 months to August 2020 from 7.6 per cent in July.

The retention of the base lending rate at seven percent is in line with the expectations of the majority of analysts who argued the need to sustain the accommodative stance but warned of shocks should the cushioning be expanded to lower the effective benchmark lending rate.