Lobby urge next MPC sitting to stay interest

Wednesday, May 24th, 2023 06:39 | By

The Kenya Bankers Association (KBA) expects the Central Bank of Kenya (CBK) to maintain the current interest rates during the next Monetary Policy Committee (MPC) meeting scheduled for May 29th.

KBA in a research note says the decision is based on several key considerations that have influenced the economic landscape and warrant a cautious approach to monetary policy.

“Underpinning this decision will be the trade-off between providing a stronger signal to tame inflation that, though eased, remains elevated, rising inflationary expectations in the outlook, and the need to support economic activity amidst waning prospects,” said KBA.

The bankers say that inflationary pressures in the country have softened due to a decline in food prices.

Watch price stability

However, overall inflation still remains above the target range, with the likelihood of a potential reversal in the near future which necessitates a vigilance to ensure price stability, and also to mitigate any adverse effects on the economy.

The lobby group argues that although the Kenyan economy exhibited resilience in 2022 when it expanded by a modest 4.8 per cent, the leading indicators for 2023 reveal a certain level of fragility.

This cautious outlook reflects the need to carefully manage monetary policy in order to support sustainable growth and avoid potential economic shocks going forward.

“Despite a decelerating pace, private sector credit has continued to grow at a double-digit rate in 2023. This growth can be attributed to the impact of the strong monetary policy tightening implemented since May 2022,” KBA said.

However, concerns have been raised regarding the deteriorating industry asset quality, which indicates a need for prudence in making monetary policy decisions so as to maintain financial stability.

According to the association, the external sector has shown signs of fragility, which is largely driven by a sustained wide current account deficit.

This deficit exerts pressure on the exchange rate, potentially leading to a weakening of the currency. In light of these challenges, a cautious approach to monetary policy is warranted to safeguard the country’s external sector stability.

Preservation of growth

“In view of the above developments, and the balance of risks on inflationary pressures and economic growth preservation, we argue that the sustenance of the current monetary policy stance – in keeping the CBR unchanged at 9.50 per cent - would be appropriate,” the lobby group said.

Keeping the Central Bank Rate (CBR) unchanged at 9.50 percent, they say, aims to strike a delicate balance between price stability, economic growth, and external sector stability.

As the Kenyan economy navigates the post-pandemic recovery phase, maintaining a stable and predictable monetary policy environment is crucial for businesses, investors, and overall economic stability.

The upcoming MPC meeting on May 29th will serve as a platform for policymakers to assess the current economic landscape and make informed decisions to support the country’s economic recovery.

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