CBK raises benchmark lending rate by 1%
The Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) has raised the benchmark lending rate by one per cent from 9.5 per cent to 10.5 per cent.
In a statement on Monday, June 26, 2023, CBK governor Dr Kamau Thugge said that the upward review is a result of the potential impact of sustained inflationary pressures, the increased risks to the inflation outlook, and the elevated global risks.
"The Committee, therefore, decided to raise the Central Bank Rate from 9.50 per cent to 10.50 per cent. The Committee will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to also further action as necessary," Thugge said.
According to CBK data, overall inflation increased to 8 per cent in May 2023 from 7.9 per cent in April, driven by fuel, food and non-food non-fuel prices. Food inflation increased to 10.2 per cent in May from 10.1 per cent in April, largely due to a sharp rise in sugar prices.
"Prices of some key food items particularly vegetables declined following improved supply attributed to the long rains, and lower global food prices. Fuel inflation increased to 13.6 per cent in May from 13.2 per cent in April, mainly due to the removal of the fuel subsidy, and increases in electricity prices following upward adjustment of tariffs in April," Thugge added.
"Non-food non-fuel inflation increased to 4.3 per cent in May from 4.1 per cent in April, indicating persistent underlying inflationary pressures in the economy."
CBK outlook
According to CBK, overall inflation is expected to remain elevated in the near term, mainly due to the recent increase in electricity prices, the removal of the fuel subsidy, and associated second-round effects.
"The global economic outlook remains uncertain, reflecting continued concerns about financial sector stability in the advanced economies, continuing geopolitical tensions, particularly the ongoing war in Ukraine, and the pace of monetary policy tightening in the advanced economies," he added.
Thugge says that despite the global uncertainties, the economy is expected to continue to strengthen in 2023, supported by the resilient services sector and recovery in agriculture.
Exports of goods have grown by 5.5 per cent in the 12 months to May 2023 compared to a similar period In 2022. Receipts from tea and manufactured goods exports increased by 10.2 per cent and 25.4 per cent, respectively during the period.
Imports declined by 2.3 per cent in the 12 months to May 2023 from a growth of 20.4 per cent in a similar period in 2022, reflecting lower imports of infrastructure-related equipment due to completed projects.
Remittances totalled USD3,997 million in the 12 months to May 2023 and were 0.1 per cent higher compared to a similar period in 2022.
"The current account deficit is estimated at 4.8 per cent of GDP in the 12 months to May 2023 and is projected to improve from 5.1 per cent of GDP in 2022 to 4.8 per cent of GDP in 2023," Thugge said.
"The CBK foreign exchange reserves, which currently stand at USD7,379 million (4.07) months of import cover), continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market. The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios."
The ratio of gross non-performing loans (NPLs) to gross loans stood at 14.9 per cent in May 2023, compared to 14.6 per cent in April. Increases in NPLs were noted in the manufacturing, trade, real estate and transport and communication sectors.
