Kenya’s central bank recently announced its decision to maintain the key interest rate at 13% amidst stable inflation.
This move comes after the bank left the rate unchanged in April, marking the second consecutive time that the Central Bank of Kenya (CBK) has held the rate steady.
The decision to keep the interest rate unchanged is based on the fact that inflation is stable within the near-term target range set by the bank.
The CBK aims to ensure that overall inflation remains stable around the mid-point of the target range while also focusing on maintaining stability in the exchange rate.
In December and February, the CBK had hiked rates in an effort to stabilize the exchange rate and bring stubborn inflation under control. The bank’s Monetary Policy Committee (MPC) has now concluded that the current monetary policy stance will help achieve the desired stability in inflation and exchange rates in the near term.
In August, the CBK introduced a new interest rate corridor to guide short-term market interest rates towards the central bank’s policy rate.
This move was aimed at providing more transparency and predictability in the financial markets. Additionally, the bank adjusted the discount window rate to 300 basis points above the central bank rate, down from 400 basis points previously.
The discount window rate is the rate at which commercial banks can borrow from the central bank as a last resort.
The Kenyan shilling has shown stability against the US dollar following the successful raising of $1.5 billion from international markets in February.
This money was used to partially buy back a bond that is maturing in June, demonstrating the government’s commitment to managing its debt obligations effectively.
Inflation in Kenya has been a concern for the government as it has been hovering at the higher end of the preferred band of 2.5-7.5 percent for several months.
It rose slightly to 5.1 percent in May, up from 5 percent in the previous month.
Despite this, official statistics show that the economy grew by 5.6 percent in 2023, showing positive growth compared to the previous year.
The central bank remains optimistic about the economic performance in 2024, despite challenges such as widespread flooding earlier in the year.
They anticipate a strong economy supported by the resilient services sector, a robust agriculture sector, and the government’s ongoing efforts to boost economic activity in key sectors.
With these factors in play, the outlook for Kenya’s economy in 2024 looks promising.
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