Why experts expect Central Bank to retain lending rate at 8.5pc

John Otini

Central Bank of Kenya (CBK) is expected to retain the Central Bank Rate (CBR) at 8.5 per cent during its monetary policy committee meeting set for today, analysts have said.

“We expect the MPC to adopt a neutral policy stance and maintain the benchmark rate at 8.5 per cent in their January meeting as the committee assesses the impact of the recent rate cut.

This is on the back of a repeal of the interest rate caps, accommodative policy stance in the global markets and stable macroeconomic conditions,” Patrick Mumu of Genghis Capital said.

Inflation, currently at 5.8 per cent, is expected to remain within the central bank target of 2.5 to 7.5 per cent in the medium term.

Kenyan shilling appreciated 1.2 per cent since the last MPC meeting with CBK saying it has forex reserves worth more than the statutory limit of five months worth of import cover.

The shilling depreciation is, however, expected with reduced growth of diaspora remittances due to an expected slowdown in the global economy according IMF projections.

Credit growth

Despite expectations of increase in private sector credit growth, analysts expect banks to cautiously grow their loan books.

These factors allude to a possible reduction in CBR especially since with the repeal of the interest rate caps, the CBK’s scope of monetary policy has been enhanced and not tied down to private sector credit.

The Central Bank’s monetary policy decisions are made to maintain a low and stable inflation rate over time, which is an indication of price stability.