Goldman Sachs Group Inc. has hailed the recent changes to the monetary policy framework by the Central Bank of Kenya as a “credit-positive” move that is expected to stimulate foreign investment and enhance exchange-rate flexibility.
The investment bank anticipates that these reforms will contribute to the strengthening of Kenya’s external balances in the long term, while concurrently fortifying the nation’s immediate external buffer.
“We expect these policies to support the long-term strengthening of Kenya’s external balances, while improved external liquidity will likely strengthen Kenya’s near-term external buffer,” Goldman economists Bojosi Morule and Andrew Matheny wrote in a note to clients.
The Central Bank of Kenya’s decision to maintain the interest rates at 10.5% while incorporating recommended reforms from the International Monetary Fund (IMF) underscores its commitment to adopting global best practices.
The new monetary policy framework, based on the principles of inflation targeting, introduces a crucial element to the policy landscape—a dynamic interest-rate corridor with a range of plus or minus 250 basis points around the central bank’s benchmark rate.
This reform aims to expedite the impact of monetary policy actions on the real economy and foster greater flexibility in interest rates.
Goldman Sachs perceives these developments as a catalyst for foreign capital inflows into Kenya’s local-currency debt market. The investment bank’s analysts underscore the potential for attracting overseas investment due to the forward-thinking policy measures.
Also, they credited the shift in policy stance and the perceived hawkish approach to Governor Kamau Thugge, who took the helm of the Central Bank of Kenya in June.
In response to the evolving monetary landscape, Goldman Sachs plans to introduce a policy rate forecast for Kenya in the near future. The bank’s favorable outlook on the changes signifies a positive stride toward an adaptable and investor-friendly monetary regime, further solidifying Kenya’s position in the global financial landscape.