Africa Economy: Kenya's central bank retains benchmark lending rate at 9.5 pct
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E-mail Xinhua, March 12, 2013
Kenya's central bank (CBK) on Tuesday retained its benchmark lending rate at 9.50 percent, noting that despite positive developments since January there are risks to macroeconomic outlook.
The CBK's top monetary policy organ, the Monetary Policy Committee (MPC), attributed these risks to the renewed upward drift in international oil prices and a weak outlook for the global economy with the expectation of a more pronounced recession in the eurozone and a slow recovery of the U.S. economy.
"This outlook, coupled with the persistent balance of payments pressures due to the high current account deficit, remains a threat to the general stability of prices," said the Committee in a statement issued after the meeting in Nairobi.
The monetary policy organ said it will continue to closely monitor the macroeconomic aggregates and expectations dynamics to ensure that the policy stance continues to deliver the desired price stability.
The MPC met to review market developments and evaluate the outcomes of its monetary policy stance since its January meeting.
The Committee noted inflation has stabilized within the government's medium-term target of 5 percent while exchange rate stability is sustained.
It said both overall and non-food-non-fuel month-on-month inflation measures remained within the government's medium-term target in January and February.
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 predicted favorable weather conditions coupled with a non- inflationary credit growth are expected to offset the impact of rising international oil prices, and hence support a low and stable short-term outlook for inflation.
The Committee expected that the recent elections will enhance confidence, giving rise to optimism and a revision of portfolios towards long-term investments.
In addition, the Committee said 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. Thus, opportunities for new economic growth poles will emerge.
The exchange rate remained stable; it fluctuated within a narrower range of between 86.24 shillings and 87.63 shillings against one U.S. dollar in February compared with a range of between 86.08 shillings and 87.61 shillings in January.
"By the time the MPC had its March meeting, the exchange rate was fluctuating around 85.30 shillings, indicating a return of confidence," the statement said.
It noted the stability of the exchange rate in the period was supported by effective liquidity management, including foreign exchange operations.
The apex bank said the government's fiscal operations in the fiscal year 2012/13 are consistent with the monetary policy objectives.
"Consequently, the domestic borrowing plan and allied policy has ensured that government borrowing does not crowd-out private sector borrowing thereby jeopardizing investment. In addition, the borrowing plan is consistent with the thresholds set in the Medium Term Debt Management Strategy for domestic debt," it said.
The Committee noted that confidence in the economy has been maintained. The NSE-20 index rose from 4,416.60 in January to 4, 518.59 in February with increased foreign investor participation.
Diaspora remittances rose from 97.50 million dollars in November 2012 to 105.66 million dollars in December 2012, and amounted to 102.97 million dollars in January.
In addition, the MPC Market Perceptions Survey conducted in February 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.
Liquidity conditions at the end of February 2013 led to short- term interest rates remaining stable around the Central Bank Rate (CBR).
Private sector credit growth maintained its upward trend supported by the improved liquidity conditions and declining average lending interest rates.
"This was consistent with monetary easing strategy adopted by the MPC. Annual growth in private sector credit rose from 10.42 percent in December 2012 to 11.95 percent in January," it said.
The credit expansion during the period was within the programmed growth path and was distributed across the key sectors of the economy.
The Committee noted that the number of loan applications increased by 13.8 percent from 71,130 in December 2012 to 80,980 in January.
The data presented and the stress tests conducted on commercial banks indicated that the banking sector remains solvent and resilient.
Despite the growth in the volume of loans, the ratio of gross non-performing loans to total loans increased marginally from 4.5 percent in December 2012 to 4.6 percent in January 2013, an indication that credit risk in the banking sector remains low. Endi
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