• This is the 12th time the rate is being retained at that level, having dropped from 7.25% in March 2020.
• Inflation is expected to remain within the target range of 2.5% to 7.5% in the near term.
Image: FILE
The Central Bank of Kenya has retained the base lending rate at seven per cent for a record 12th time, citing a stable macroeconomic environment despite the pandemic.
The Monetary Policy Committee (MPC) met on Tuesday against a backdrop of the Covid-19 pandemic, measures taken by authorities around the world to contain its spread and impact and the evolving global outlook.
The MPC reviewed the outcomes of its previous decisions, including measures implemented to mitigate the adverse economic effects and financial disruptions from the pandemic.
In a statement, CBK governor Patrick Njoroge who chairs the committee noted overall inflation declined to 5.7 per cent in December 2021 from 5.8 per cent in November, mainly due to lower food prices.
Food inflation declined to 9.1 per cent in December from 9.9 per cent in November, reflecting the impact of improved rainfall on fast-growing food crops.
Fuel inflation however remained elevated at 10.5 per cent in December, due to the impact of higher international oil prices.
According to CBK, inflation is expected to remain within the target range(2.5%-7%) in the near term, with muted demand pressures and the impact of government measures to lower electricity tariffs and stabilise fuel prices.
This, even as weaker global growth is projected for 2022 and 2023, is driven by expected lower growth in the two largest economies (the United States and China).
Uncertainties in the global economic outlook have also increased, reflecting elevated risks from Covid-19 variants, supply chain disruptions, oil price volatility, and inflation developments.
"The risk of increased volatility in the global financial markets remains high as a result of uncertainties regarding policy actions in the advanced economies," the committee has noted.
Nevertheless, the recently released GDP data for the third quarter together with leading indicators confirm that the Kenyan economy rebounded strongly in 2021, following the easing of Covid-19 restrictions, and the impact of government interventions.
Real GDP grew by 9.9 per cent in the third quarter of 2021 compared to a contraction of 2.1 per cent in the third quarter of 2020.
This was driven by the strong recovery of the services sector particularly transport and storage, education, information and communication, wholesale and retail trade, and the improved performance of the manufacturing and construction sectors.
The economy is expected to remain strong in 2022, supported by the continued strong performance of the services sector, recovery in agriculture, and an improvement in global demand.
CBK notes 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 13.1 per cent in December 2021, compared to 13.6 per cent in October.
Repayments and recoveries were noted in the manufacturing, personal and household, transport and communication and building and construction sectors.
The banking sector registered a strong performance in the year ended December 31, 2021, with the asset base increasing by 11.1 per cent from Sh5.4trillion at end of 2020 to Sh6 trillion, a performance underpinned by banks reviewing their business models leveraging on technology and innovation, enhanced capital and liquidity buffers.
"The committee concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 per cent," Njoroge said.
The Committee will meet again in March 2022, but remains ready to re-convene earlier if necessary, the governor affirmed.