Kenya Central Bank Holds Interest Rate Steady Amidst Inflation Slowdown

Kenya’s Central Bank has opted to maintain its benchmark interest rate at a 12-year high.

The Monetary Policy Committee, led by Governor Kamau Thugge, announced on Wednesday that the rate would remain steady at 13%.

Governor Thugge expressed confidence in the trajectory of inflation and expected further decline in the near term.

Factors such as reduced food and fuel prices, coupled with the positive effects of recent exchange-rate appreciation, are anticipated to contribute to this downturn.

Thugge explained that the current monetary policy stance aims to steer overall inflation towards the 5% midpoint of the target range.

This decision comes on the heels of a notable slowdown in inflation, which dipped to 5.7% last month from 6.3% in February.

The recent strengthening of the Kenyan currency against the dollar, soaring by approximately 24% since February’s MPC meeting, has been a pivotal factor.

The currency’s rally has been bolstered by various factors, including the successful partial rollover of a $2 billion eurobond set to mature in June, alongside two consecutive interest-rate hikes in December and February totaling 250 basis points.

While yields on Kenya’s eurobond due 2031 saw a slight decrease post-announcement, the decision to maintain the interest rate offers stability amidst evolving economic dynamics.

Key insights reveal that while foreign-exchange reserves remain below the critical four-month import cover threshold, anticipated inflows from international institutions such as the World Bank and International Monetary Fund are expected to provide a boost.

Despite challenges such as a slowdown in private-sector credit growth and an uptick in non-performing loans, particularly in the real estate and construction sectors, the Central Bank’s decision reflects a commitment to navigating Kenya’s economic landscape with prudence and foresight.