Banking - The Central Bank of Kenya (CBK) has decided to retain its base lending rate at 9.50 percent in this month's market review. The CBK Monitory Policy Committee (MPC) said despite the positive developments in the economy since the last review in January, there were risks to the macroeconomic outlook.
The committee says the outlook, coupled with the persistent balance of payments pressures due to the high current account deficit, was still a threat to the general stability of the oil prices hence the need to be cautious.
'Month-on-month overall inflation increased from 3.67 percent to 4.45 percent during the period mainly reflecting increases in the prices of seasonal food stuffs and fuel, and a fall in the base price in February 2012. However, non-food-non-fuel inflation, which measures the impact of monetary policy, declined from 4.51 percent to 4.46 percent during the period,' the chair of the committee, who is also the CBK governor professor Njuguna Ndung'u said.
The exchange rate remained stable fluctuating within a narrower range of between Sh86.24 and Sh87.63 for the US Dollar in February 2013 compared with a range of between Sh86.08 and Sh87.61 in January.
'By the time the MPC had its March meeting, the exchange rate was fluctuating around Sh85.30 indicating a return of confidence. The stability of the exchange rate in the period was supported by effective liquidity management, including foreign exchange operations,' Njuguna said.
The Committee expects that the recent elections will enhance confidence, giving rise to optimism and a revision of portfolios towards long-term investments by investors.
In addition, the devolved Government structure under the new Constitution will create new opportunities arising from the imaginative appraisal of the relative comparative resource endowments at the county level.
'Given the several considerations, and the need to provide time for previous MPC decisions to work through the economy, the Committee decided to retain the CBR at 9.50 percent. However, the Committee will continue to closely monitor the macroeconomic aggregates and expectations dynamics to ensure that the policy stance continues to deliver the desired price stability,' he said.
In addition, the MPC Market Perceptions Survey conducted in February this year showed that the private sector expects inflation and the exchange rate to remain stable in the remainder of 2013.
The Survey also showed sustained optimism for a strong growth recovery in 2013 on account of the prevailing macroeconomic stability and enhanced confidence in the economy following a peaceful election.
By Margaret Wahito