Kenya Holds Key Interest Rate As Economic Outlook Improves

(Bloomberg) -- Kenya’s central bank held its key interest rate for the fourth straight meeting as policy measures support an economy seen performing better than earlier forecasts.

The monetary policy committee maintained the rate at 7%, Governor Patrick Njoroge said Tuesday in a statement. That matched the estimate of all five economists in a Bloomberg survey.

Some 150 basis points of cuts previously are having the intended impact on East Africa’s largest economy. The Central Bank of Kenya revised its economic-growth forecast for this year to 3.1%, compared with 2.3% earlier, Njoroge said during a press briefing on Wednesday.

Key Insights:

• Farming is boosting the economy, with more exports partly on a 17.1% increase in tea-export earnings to $850 million in the eight months through August. Flower exports are also recovering as European markets ease lockdowns.
• Receipts from services exports remained subdued, declining by 22.4% in the eight-months through August, reflecting weaknesses in international travel and transport.
• Inflation remained at 4.4% in August and is expected to stay inside the central bank’s target range of 2.5% to 7.5% in the near-term, Njoroge said. That is thanks to lower food prices, the impact of the reduction of value-added tax and muted demand pressures.
• The MPC decision came a day before the release of second-quarter gross domestic product data. The economy probably contracted by 2.6% in the three months through June from a year earlier, according to the median estimate of six economists in a Bloomberg survey. However, economic indicators for the third quarter point to a strong recovery in activity, Njoroge said.
• Private-sector credit grew by 8.3% in the 12 months to August, “supported by continued recovery in demand from Covid-19 related disruptions and the accommodative monetary policy,” Njoroge said. There was “strong growth” in lending in sectors including manufacturing, transport and communications, trade, and consumer durables.
• The ratio of bad loans stood at 13.6% of total credit in August compared with 13.1% in June due to a subdued business environment. The six-month suspension of listing information on debt defaulting due to Covid-19 ends today, and banks resume “normal operations” Oct. 1, Njoroge said.
• Banks restructured 1.12 trillion shillings ($10.3 billion) of the sector’s total loan book by the end of August due to the virus.

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