Private credit slowdown not inflation threat to economic growth, CBK governor

The Central Bank of Kenya (CBK) is unlikely to make significant changes to the country’s monetary policy despite the recent spike in the cost of living.

February inflation shot up to 9.04 percent on the back of the ravaging drought, but the banking regulator argues it’s unlikely to lead to a second round of price hikes.

CBK Governor Dr Patrick Njoroge said the latest rise in inflation will not impact financial planning despite the continued rise in basic commodity prices.

“It is unlikely to have a substantial impact on overall inflation,” Dr Njoroge told Reuters on the sidelines of the Climate Bonds Initiative conference.

Dr Njoroge further added that the overall number formed less of a basis for monetary policy or for financial pricing.

“This is a judgment that the monetary policy committee needs to make, but on the whole I would be very surprised (if) there were significant second order effects from that,” he said.

At 9.04 percent, the current inflation rate is way above the government’s upper target of 7.5 percent.

The CBK’s monetary policy committee is set to hold its meeting on the 27^th of this month.

The MPC has held the benchmark lending rate at 10 percent despite inflationary pressure as well as global economic uncertainties.

The central bank has however warned that the persistent drought could cast a shadow on economic growth.

The central bank governor however said he was more concerned with the slowdown in private sector credit which he is concerned poses a real threat to economic growth.

“I am concerned about it in the long-term if it stays at these low levels. It will have an impact on growth over the next few months or over the next half year,” Dr Njoroge said.

In 2016, the government adopted a new law capping interest rates at four percent of the central bank rate as well as capping interest on deposits at 70 percent of the same rate.

The central bank has however argued it would need more time and data to gauge the effectiveness of the new law and whether it needed further tweaking.

Additional reporting by Reuters