CBK holds the benchmark lending rate at 7 percent

The Central Bank of Kenya (CBK) has held its benchmark lending rate for the second time at seven percent, noting continued policy transmission on recent policy measures.

In a statement issued on Thursday, the reserve bank’s Monetary Policy Committee (MPC) noted recent measures passed on in March continue to trickle in the economy flanked in part by recent fiscal measures.

“The Committee noted that the package of policy measures adopted since March were having the intended effect on the economy, and will be augmented by the announced fiscal measures. The MPC concluded that the current accommodative monetary policy stance remains appropriate,” noted the MPC Chairman and CBK Governor Patrick Njoroge.

In March, the bank cut the base lending rate to seven percent from 7.25 percent in addition to lowering the commercial bank cash reserve ratio (CRR) to 4.25 percent from 5.25 percent in a bid to double down on the liquidity push to the economy amidst the Covid-19 pandemic.

Subsequently, private sector credit growth has continued to strengthen coming in at 8.1 percent over 12 months to May albeit at a slow pace from the nine percent recorded in April.

This growth has been observed largely in the manufacturing sector at 18.6 percent, 8.2 percent in trade and finance and insurance at 7.2 percent.

The CBK expects the implementation of the credit guarantee scheme to further push out credit particularly to Small and Medium Enterprises (SMEs) by de-risking lending by commercial banks.

Banks continued to access additional liquidity from the lowering of the CRR as their tapping of the freed up Ksh.35.2 billion hit Ksh.30.8 billion in May with funds assessed supporting lending in particular to the sectors of tourism and transport.

The reserve bank expects recent measures to continue translating in the economy supported by the governments recently announced economic stimulus totalling to Ksh.56.6 billion which is directed into eight thematic areas including tourism and SMEs.

“Most recent leading indicators for the Kenyan economy point to strong growth in the first quarter of 2020. The indicators for the second quarter suggest that the impact of COVID-19 on the economy was most pronounced in April, with evidence of recovery in May supported by improved agricultural output and exports, although the services sector remains subdued,” added CBK.

“The measures by the Government to cushion businesses and households continue to moderate the impact of the pandemic.”

According to CBK data, the export of goods improved by 4.1 percent in five months to May driven by a recover in tea, horticulture and re-exports.

Diaspora remittances meanwhile recovered in May to Ksh.27.5 billion ($258.2 million) from Ksh.22.2 billion (208.2 billion) in April.

Meanwhile, CBK usable foreign exchange reserves rose to Ksh.978.9 billion ($9.2 billion) or an equivalent 5.53 months import cover, an adequate cover and buffer against short-term shocks in the foreign exchange market.