The Central Bank of Kenya (CBK) has defied market expectations leaving its benchmark rate unchanged at 7.5 percent in its latest industry review.
The lender of last resort says recent State interventions, including the retention of the fuel subsidy and the introduction of a price cushioning mechanism on unga have served to anchor down inflation expectations.
Kenya raised the lending rate by 50 basis points to 7.5 percent at their last meeting in May, the first increase since July 2015.
CBK Governor Patrick Njoroge, who chaired the Monetary Policy Committee (MPC) meeting noted that its action of tightening monetary policy in May was timely in anticipating emerging inflationary pressure and its impact on the economy.
Latest data from the Kenya National Bureau of Statistics show that the country’s rate of change in the cost of commodities surged to 7.9 percent in June from 7.1 percent in May due to a jump in food and oil prices.
“Fuel inflation rose to 10 percent in June from 9 percent in May driven by increases in fuel and cooking gas prices on account of higher international prices,” CBK Governor said.
Further, the banking sector regulator said that international commodity prices, especially oil, wheat, and edible oils have started easing and the move is likely to lower inflationary pressures in the country in the months ahead.
CBK noted that the country’s forex reserves currently at $7,744 million, which is equivalent to 4.47 months of import cover are expected to provide an adequate cushion against market shocks.
The Monetary Policy Committee said the rollout of the FY21/22 budget showed strong revenue collection that surpassed the target, a pointer to enhanced tax administration.
Globally, the war in Ukraine continues to negatively impact economies over and above pandemic-related disruptions and supply chain woes, the MPC said.
In the three months to March, Kenya economy posted 6.8 percent growth in GDP, more than double the 2.7 percent growth posted in a similar period in March 2021.
“Leading indicators of economic activity show continued strong performance in the second quarter of 2022, supported by strong activity in transport and storage, wholesale and retail trade, construction, ICT, accommodation, and food services,” Dr Njoroge noted.
A private sector market perceptions survey by the MPC said players are concerned about high inflation, the impact of the war in Ukraine on commodity prices, supply chain woes on trade as well as poor rainfall pattern in the country.