The Central Bank of Kenya (CBK) has left its benchmark lending rate unchanged at 10.5 percent with inflation having retreated last month.
On Wednesday the apex bank noted inflationary pressure had further eased with core inflation — non-food, non-fuel inflation declining.
While the rate of inflation returned to the government’s target range of 2.5 to 7.5 percent at 7.3 percent in July, core inflation which measures the second round effects of inflation, especially from food and fuel costs, on the prices of other goods fell to 3.8 percent from 4.1 percent in June.
As a result, the CBK Monetary Policy Committee concluded holding its monetary policy stance was appropriate at this time.
“The MPC noted that inflation is already within the target band and is expected to decline further as food inflation is expected to come down. The Committee also noted that inflationary pressures had eased as non-food, non-fuel inflation declined,” it said on Wednesday.
A survey of the agriculture sector by the CBK ahead of the policy-setting meeting showed that the prices of key food items excluding sugar and onions had declined.
Respondents to the survey further indicated the supply of key food items was set to increase in the coming months as harvesting starts in some regions. High input costs, transport costs and weather conditions were nevertheless cited as headwinds to food inflation.
The CBK’s hold of the monetary policy stance aligns widely to market expectations with participants having warned further tightening action would break the spine of the market including the likelihood of constraining private sector lending.
Commercial banks, for instance, said the ongoing transmission of the last tightening cycle had constrained lending conditions.
“The ongoing transmission of higher interest rate policy signals announced in late June 2023 continues to trigger cautious and tighter lending conditions,” Kenya Bankers Association said in a research note.
Source: Business daily Africa
