CBK monetary policy organ stays lending rate at 9.50 per cent

Central Bank of Kenya’s Monetary Policy Committee (MPC) has retained its base lending rate at 9.50 on the back of declining inflation and tightening of monetary policy.

The regulator’s top decision-making organ headed by Governor Patrick Njoroge said yesterday that the impact of tightening of the monetary policy in March to anchor inflationary expectations was still transmitting in the economy.

This, according to the MPC, coupled with the importation of duty-free imports on specific food items, particularly sugar, are expected to moderate prices and ease domestic inflationary pressures.

The regulator says the cost of living declined to 7.9 per cent in May, a 130 bps drop from March’s 9.2 per cent on the back of lower food prices.

“In view of these developments, the MPC decided to retain the Central Bank Rate (CBR) at 9.50 percent,” Njoroge said.

In the review period, food declined to 10.1 per cent in April from 13.4 per cent in March due to lower prices of vegetables, attributed to the ongoing rains and improved supply of select non-vegetable food items, while fuel inflation remained elevated at 13.2 per cent in April because of increases in electricity prices due to higher tariffs and scaling down of the fuel subsidy.

“Food inflation is expected to moderate in the coming months following the long rains, and lower global food prices. Nevertheless, the recent increases in electricity prices, the removal of the fuel subsidy, and a sharp rise in sugar prices are expected to exert moderate upward pressure on overall inflation,” CBK warned.

This was the final MPC meeting for Njoroge and his deputy Sheila M’Mbijjiwe, and convened at a time of heightened global uncertainty and bleak growth prospects.

Despite mounting global financial sector turmoil, the US debt-ceiling revaluation debate, tapering headline inflation and diminishing diaspora remittances, financial sector analysts and advocacy groups had expected CBK to maintain its rate so as to anchor the economy in good shape.

“In our view, the contractionary policy stance that began in May 2022 to quell inflationary pressure back within target bounds is taking its desired effect. We anticipate this signal will temper hawkish MPC sentiments in the upcoming meeting,” investment bankers Genghis Capital Limited said in their pre-MPC outlook note, a view supported by the Kenya Bankers Association.