MARKETS

Base lending rate stays 7% to cushion economy

MPC continues to closely monitor the impact of the policy measures

In Summary

•The Monetary Policy Committee said measures adopted in March and April were having the intended effect on the economy.

• Overall, inflation is expected to remain within the target range in the near term.

CBK Governor Patrick Njoroge.
CBK Governor Patrick Njoroge.
Image: FILE

The Monetary Policy Committee has retained the base lending rate at seven per cent in its latest review on Wednesday.

Central Bank of Kenya Governor Patrick Njoroge who heads the committee said measures adopted in March and April to cushion the economy from the Covid-19 effects were having the intended effect.

Growth is expected to worsen in the second quarter of the year (April-June), with the imposition of more stringent travel and transport containment measures, particularly in transport and storage, trade, and accommodation and restaurants.

As a result, real GDP growth in 2020 could slow to about 2.3 per cent from 5.4 per cent in 2019, Njoroge said.

Overall, inflation is expected to remain within the target range in the near term.

“This is supported by the improving food supply due to favourable weather conditions, lower international oil prices, the impact of the reduction of VAT and muted demand pressures,” Njoroge said.

The CBK foreign exchange reserves, which currently stand at $8.3 billion (5.02 months of import cover) continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market, the committee said.

On Wednesday, the committee backed the Economic Stimulus Programme announced by government to cushion vulnerable citizens and businesses from the adverse effects of the pandemic and enhance economic activities.

The measures are expected to be implemented expeditiously in 2020-21 financial year and will focus on key sectors including agriculture and food security, tourism, manufacturing, education , health , ICT and MSMEs.   

“The MPC concluded the current accommodative monetary policy stance remains appropriate and therefore decided to retain the Central Bank Rate at seven per cent,” Njoroge said.

He said the committee will continue to closely monitor the impact of the policy measures so far as well as developments in the global and domestic economy and stands ready to take additional measures as necessary.

In April, the MPC lowered the CBR from 7.25 per cent in light of the continuing adverse economic outlook.

This was after a reduction to 7.25 per cent from 8.25 per cent in March.

Edited by Henry Makori