Kenya Holds Key Rate on Well-Anchored Inflation Expectations

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Kenya’s central bank held its key interest rate for an eighth straight meeting, continuing its support for the economy as it sees inflation expectations as well-anchored.

The monetary policy committee maintained the rate at 7%, Governor Patrick Njoroge said Wednesday in statement posted on Twitter. That matched the forecast of all seven economists in a Bloomberg survey.

East Africa’s biggest economy shrank an estimated 0.1% in 2020, the first contraction in 27 years, according to International Monetary Fund data. While output is projected to recover, the lender warned earlier this month that the persistence of the Covid-19 pandemic suggests the expected pickup will be slightly weaker than anticipated and lowered its forecast for expansion to 6.3% from 7.6%.

What Bloomberg Economics Says

“We see the central bank continuing to hold rates through 2022. This reflects the monetary policy committee’s view that the current policy stance remains appropriate given the package of measures it implemented in the wake of the crisis.”

--Boingotlo Gasealahwe, Africa economist

-Click here for the full commentary

Inflation eased to 5.8% in April. While the rate is still close to the levels of a year ago, favorable weather boosting food supplies could help keep price growth steady. On the downside, a continued increase in global oil prices will push up the cost of fuel, which has been a big contributor to the headline rate since the middle of last year.

The central bank expects inflation to remain within its target range of 5% with a margin of 2.5 percentage points on either side in the near term, supported by lower food prices and muted demand pressures, Njoroge said. The MPC is monitoring the impact of its policy measures and could re-convene earlier than its scheduled July meeting if necessary, he said.

Other Key Points:

  • Private-sector credit grew 6.8% in the 12 months to April.
  • The ratio of non-performing loans to gross loans was 14.2% in April, compared with 14.5% in February.

©2021 Bloomberg L.P.

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