Business

CBK likely to retain lending rate at 7pc

Wednesday, January 20th, 2021 00:00 | By
Central Bank of Kenya. Photo/PD/File

Financial analysts are predicting the Central Bank monetary policy committee (MPC) will retain Central Bank Rate (CBR)  at 7 per cent during its January 27 meeting to support the economy from adverse effects of Covid-19 pandemic.

It would be the sixth straight time the Central Bank of Kenya’s (CBK) top decision-making organ would be retaining the benchmark lending rate at 7 per cent since April 2020.

The analysts from Cytonn also reckon the government is likely to borrow from the money markets to meet its debt obligation, amidst a decline in tax collections due to the Covid-19 austerity measures currently in place.

Upward pressure

“We project some upward pressure on interest rates due to increased pressure by the government to meet possible increased borrowing target to plug in the fiscal deficit due to the decline in tax collection during the pandemic,” Cytonn says in its weekly report.

It is a view supported by Genghis Capital, whose senior research analyst Churchill Ogutu who said: “The cloud of Covid-19 uncertainty still hangs with us with all signals pointing to an economy that is yet to fully recover.”

He said, credit to the private sector, which was meant to be supported by the previous CBR cuts at 8.2 per cent in November 2020 has not been robust.

“I expect upward inflationary pressure with reversal of VAT rates back to 16 per cent but this is mainly cost-push which no monetary policy action can cure,” he said.

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