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Central Bank’s Monetary Policy Committee (MPC) has retained its base lending rate at 7.50, saying international commodity prices, particularly oil, wheat and edible oils had begun to moderate.

The Committee noted that its action of tightening monetary policy in May was timely in anticipating emerging inflationary pressures and its impact was still transmitting through the economy.

The MPC action has subsequently been complemented by an additional package of fiscal measures by the government to moderate the prices of specific items.

“These developments are expected to ease domestic inflationary pressures in the near term. The MPC therefore decided to maintain the Central Bank Rate (CBR) at 7.50 percent,” said CBK Governor Patrick Njoroge. In June, overall inflation rose to 7.9 per cent from 7.1 per cent in May, due to increases in food and fuel prices.

Food inflation increased to 13.8 per cent in June from 12.4 percent in May, mainly on account of prices of maize following reduced supply attributed to depressed rains and edible oils and wheat products due to the impact of supply chain disruptions.

Fuel inflation rose to 10 per  cent in June from 9 per  cent in May, driven by increases in fuel and cooking gas prices on account of higher international oil prices. This increase was nevertheless moderated by measures implemented by the government to stabilise fuel prices, lower electricity tariffs, and subsidies on fertilizer prices.

Additionally, the recent waiver of import duties and levies on white maize, the subsidy on retail prices of sifted maize flour, and the recent reduction in the Value Added Tax on liquified petroleum gas (LPG) will further moderate domestic prices, said Njoroge.

The recently released gross domestic product data (GDP) data for the first quarter of 2022 confirmed the continuing strong performance of the Kenyan economy, with real GDP growing by 6.8 per cent compared to 2.7 per cent in the first quarter of 2021.

In the second quarter of 2022, the economy continued to perform strongly, supported by strong activity in transport and storage, wholesale and retail trade, construction, information and communication, and accommodation and food services. It is expected to remain robust in 2022, with continued strong performance of the services sector despite the downside risks to global growth, said Njoroge in a statement.

CBK recently conducted three surveys ahead of the MPC meeting, including Private Sector Market Perceptions Survey, CEOs Survey and the Survey of Hotels which revealed sustained optimism about business activity and economic growth prospects for 2022.

“The optimism was attributed to government spending on key infrastructure projects, continued post Covid-19 recovery and expected pickup in economic activities after the elections,” Njoroge said.

However, concerns about high inflation, the impact of the war in Ukraine on commodity prices, supply chain disruptions and the impact of the depressed rainfall on agricultural production still remain.