The Central Bank of Kenya’s Monetary Policy Committee (MPC) decided to maintain the benchmark lending rate at 10.5% during its latest meeting, reaffirming its commitment to managing inflation within the targeted range.
This decision comes after a previous rate increase of 100 basis points in June, which was implemented to counter inflationary pressures. The MPC’s latest action reflects their assessment that inflationary pressures, particularly in non-food and non-fuel sectors, are showing signs of easing.
In September, Kenya experienced a slight uptick in year-on-year inflation, reaching 6.8% compared to 6.7% in August. The rise was mainly attributed to a 13% increase in retail energy prices. However, it’s important to note that this rate had previously exceeded the government’s upper limit of 7.5% for a year before falling below it in June.
The Central Bank indicated that the impact of the June rate hike is still working its way through the economy. Moreover, the bank has revised its year-end current account deficit forecast from 4.8% of GDP to 4.1%, citing rising export earnings and a decrease in imports. This is an improvement from the 5.1% of GDP deficit reported at the end of the previous year.
Dr. Kamau Thugge, the Governor of the Central Bank of Kenya, expressed optimism about the economic outlook. He highlighted that lower food prices due to improved supply are expected to help keep inflation in check. While food inflation increased to 7.9% in September, it was primarily driven by select vegetable prices. However, staple food items like maize and wheat flour saw declines in prices, thanks to enhanced supply and government measures to facilitate critical food imports.
Fuel inflation remains high, standing at 13.1% in September, reflecting the global surge in oil prices.
Dr. Thugge added, “Leading indicators of economic activity for Kenya indicate strong performance in 2023, driven by robust growth in the services sector, a rebound in agriculture, and government initiatives to stimulate economic activity in key sectors.”
Kenya’s foreign exchange reserves currently total USD 6,901 million, equivalent to 3.70 months of import cover. In the 12 months leading up to August 2023, goods exports showed a marginal increase of 0.5% compared to the same period in 2022. Notably, earnings from tea and manufactured exports surged by 4.5% and 23.2%, respectively, fueled by higher prices in traditional markets and strong regional demand.
Imports, on the other hand, declined by 11.9% in the 12 months to August 2023, compared to a 16% growth in a similar period in 2022. This decline was primarily driven by reduced imports of infrastructure-related equipment, manufactured goods, oil, and chemicals.
In other indicators, tourist arrivals registered significant improvement, with a 34% increase in the first eight months of 2023 compared to the same period in 2022. Additionally, remittances reached USD 4.120 billion in the 12 months to August 2023, marking a 3.2% rise compared to the same period in 2022.
Overall, Kenya’s economic outlook remains optimistic, with the Central Bank’s decision to maintain the lending rate reflecting its confidence in the country’s economic trajectory.
Photo: Kamau Thugge CBK governor/ Source: citizen.digital
By: Montel Kamau
Serrari Financial Analyst
4th October, 2023
