- In a statement after its Monetary Policy Committee(MPC) meeting on Monday, CBK governor noted that inflation expectations remained anchored.
- The MPC noted that overall inflation declined to 6.5 per cent in October 2021 from 6.9 per cent in September, mainly due to lower fuel prices.
Image: EZEKIEL AMING'A
The Central Bank of Kenya has retained the base lending rate at seven per cent.
In a statement after its Monetary Policy Committee(MPC) meeting on Monday, CBK governor Patrick Njoroge noted that inflation expectations remained anchored within the target range while leading economic indicators showed continued robust performance.
The MPC noted that overall inflation declined to 6.5 per cent in October 2021 from 6.9 per cent in September, mainly due to lower fuel prices.
Fuel inflation declined to 9.6 percent in October from 11.1 per cent in September, reflecting the impact of the government measures to stabilize fuel prices.
Food inflation remained elevated at 10.6 per cent in October, mainly due to the impact of depressed rainfall on some food items.
The committee expects inflation to remain within the target range in the near term with muted demand pressures.
Further, the recently released GDP data indicates that the Kenyan economy rebounded strongly in the first half of 2021, mainly reflecting the recovery in economic activity following the easing of Covid-19 restrictions.
In particular, real GDP grew by 10.1 per cent in the second quarter of 2021 compared to a contraction of 4.7 per cent in the second quarter of 2020.
The MPC expects economic growth to remain strong in 2022, with the normalization of domestic economic activities, as well as easing of global supply chain constraints, and stronger global demand
The three surveys conducted for the MPC meeting, private sector market perceptions survey, CEOs survey, and the survey of hotels, revealed the highest level of optimism about economic growth prospects since March 2021.
The respondents attributed this optimism to sustained recovery across different sectors, the lifting of the curfew, reduced Covid-19 infection numbers, and increased vaccinations.
Others include continued government infrastructure spending and the global economic recovery which is expected to boost export demand.
Additionally, respondents expect consumer demand to pick up during the festive and back-to-school seasons.
Nonetheless, while concerns about the pandemic have eased, respondents remained concerned about the dry weather conditions and increased political activity.
The survey of hotels confirmed continued recovery with virtually all surveyed hotels now operational, the highest levels of bed occupancy and bookings since the onset of the pandemic, and increased restaurant and conferences services.
The committee noted that the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.6 per cent in October compared to 13.9 per cent in August.
Repayments and recoveries were noted in the trade, manufacturing, personal and household and financial services sectors.
Growth in private sector credit increased to 7.8 percent in October 2021, from 7.0 percent in August.
Strong credit growth was observed in the following sectors: manufacturing (10.9 per cent; transport and communication (9.6 per cent), business services (8.2 per cent), and consumer durables (16.5 per cent).
The number of loan applications remained strong in October, reflecting improved demand with increased economic activities.
Progress was noted with regard to lending under the Credit Guarantee Scheme that was operationalised in October 2020.
The committee also noted the successful progress in implementation of the FY2021/22 government budget, particularly the rebound in revenue performance with the pick up of economic activities and improvement of the business environment.
The rollout of the economic stimulus programme and economic recovery strategy were also noted, and are expected to continue to boost domestic demand.
“We will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary,” said Njoroge.
The committee will meet again in January 2022, but remains ready to re-convene earlier if necessary.