•Prices of commodities particularly oil, wheat, and fertiliser have risen sharply as a result of supply disruptions, adding to elevated global inflationary pressures.
•Leading indicators however point to a strong performance of the Kenyan economy in the first quarter of 2022, CBK notes.
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The Central Bank of Kenya has retained the base lending rate at seven per cent, an average that now runs into its second year.
The bank's Monetary Policy Committee (MPC) met on Tuesday, against a backdrop of a changed global outlook with heightened geopolitical tensions, volatile commodity prices and the Covid-19 pandemic and measures taken by authorities around the world.
However the retention comes at a rime when CBK has started clearing banks to re-introduce risk based lending. Equity bank has since applied for this and has been cleared.
Under the chairmanship of CBK governor Patrick Njoroge, the committee noted that overall inflation declined to 5.1 per cent in February 2022, from 5.4 percent in January, mainly due to lower fuel and food prices.
It is expected to remain within the target range in the near term (2.5 per cent-7.5 per cent).
The committee however noted an increased risk of inflationary pressures arising from the global uncertainties.
The global economic outlook remains uncertain, reflecting the ongoing Russia-Ukraine conflict that started at the end of February.
Prices of commodities particularly oil, wheat, and fertiliser have risen sharply as a result of supply disruptions, adding to the already elevated global inflationary pressures.
Leading indicators however point to a strong performance of the Kenyan economy in the first quarter of 2022, supported by robust activity in construction, information and communication, wholesale and retail trade, transport and storage, and manufacturing.
“The economy is expected to remain resilient supported by recovery in agriculture and continued strong performance of the services sector despite the downside risks to global growth in 2022,” Njoroge said.
Three surveys conducted ahead of the MPC meeting — Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels — revealed continued optimism about business activity, employment, and economic growth prospects for 2022.
The banking sector also remains stable and resilient, with strong liquidity and capital adequacy ratios, CBK noted, as the ratio of gross non-performing loans to gross loans stood at 14.0 per cent in February 2022, compared to 13.1 per cent in December 2021.
The committee noted the steady implementation of the FY2021/22 government budget, particularly the strong revenue performance to February 2022, reflecting enhanced tax collection efforts and increased economic activity following the easing of Covid-19 containment measures.
The continued execution of the Economic Stimulus Programme and the Economic Recovery Strategy were also noted, expected to support the economy and cushion the most vulnerable.
“The committee concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate at 7.00 percent,” Njoroge said.