CBK leaves benchmark rate unchanged for third time at 7%

The Central Bank of Kenya (CBK) has retained the benchmark lending rate at seven percent for the third straight month.

The CBK Monetary Policy Committee (MPC) has attributed the hold on policy rate to the continued transition of measures implemented in March to prop the economy.

Among the measures introduced three months ago included the cutting of the base rate to 7.25 percent and the lowering of the commercial bank cash reserve ratio (CRR) to 4.25 percent in a move to boost liquidity on lending by commercial banks.

“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 the implementation of the measures in the FY2020/21 Budget. The MPC concluded that the current accommodative monetary policy stance remains appropriate,” noted CBK in a statement issued on Wednesday.

The retention of the lending rate by the reserve bank is on the back of renewed optimism for a rebound in economic growth among private sector players through CBK’s July market survey.

CBK has further attributed the hold of the accommodative policy to accompanying fiscal policy measures contained in the Ksh.56.6 billion economic stimulus which is expected to further cushion and stimulate the economy.

The country’s foreign currency flows have meanwhile improved with exports recovering to post a 1.7 percent growth rate through the first half of the year boosted in part by tea and horticulture earnings.

Remittances have likewise turned the corner to rise to Ksh.31.1 billion ($288.5 million) in June from Ksh.27.8 billion ($258.2 billion) in May.

CBK’s usable foreign currency reserves have meanwhile remained resilient at Ksh.1 trillion ($9.3 billion) or an equivalent 5.67 months of import cover.

A decline in services including air transport has nevertheless weakened the capital account slightly with the current account deficit expected to widen slightly to 5.1 percent this year.

Further, private sector credit growth has declined slightly in 12 months to June to stand at 7.6 percent in comparison to 8.1 percent in May.

The CBK’s MPC is expected to meet again in September.