RETAINED

CBK maintains base lending rate at 7.5%

The apex bank expects the cost of living to ease on reduced uncertainties in the global market

In Summary
  • Even so, it predicts poor global economic growth in 2022
  • On Tuesday, IMF cut it to 3.2 per cent from 6.1 per cent in April. 
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Image: EZEKIEL AMING'A

The Central Bank of Kenya has retained the base lending rate at 7.5 saying international commodity prices, particularly oil, wheat and edible oils had begun to moderate. 

''These developments are expected to ease domestic inflationary pressures in the near term. The MPC, therefore, decided to maintain the Central Bank Rate (CBR) at 7.50 per cent,'' CBK's statement reads. 

It added that its action of tightening monetary policy in May 2022 was timely in anticipating emerging inflationary pressures, and its impact was still transmitting through the economy.

This was subsequently complemented by an additional package of fiscal measures by the Government to moderate the prices of specific items which saw it offer subsidies on fuel and maize flour. 

In the previous review, the committee adjusted the base lending rate upwards by 50 basis points in a bid to stabilise the economy and put brakes on the rising cost of living.

The country's inflation rose to 7.9 per cent in June from 7.1 per cent the previous month, breaching the government's ceiling of 7.5 per cent. 

Food inflation increased to 13.8 per cent in June from 12.4 per cent in May, mainly on account of prices of maize following reduced supply attributed to depressed rains, and edible oils and wheat products due to the impact of supply chain disruptions. 

The apex bank said the global economic outlook has become more uncertain, reflecting the adverse effects of the ongoing war in Ukraine, continuing pandemic-related disruptions, and supply chain challenges.

Global growth is expected to be weaker in 2022, reflecting a significant slowdown in economic activity in advanced economies and emerging markets. 

On Tuesday, the International Monetary Fund (IMF) cut the global economy by almost half to 3.2 per cent from 6.1 per cent in April. 

In Kenya, the lender expects GDP to expand 5.7 per cent from an earlier projection of six per cent. 

Even so, the recently released GDP data for the first quarter of 2022 confirmed the continuing strong performance of the Kenyan economy, with real GDP growing by 6.8 per cent compared to 2.7 per cent in the first quarter of 2021.

This performance reflects a continued recovery in a wide range of sectors.

"The economy is expected to remain robust in 2022, with the continued strong performance of the services sector despite the downside risks to global growth,'' CBK said. 

The regulator said good exports have remained strong, growing by 11.2 per cent in the 12 months to June 2022 compared to a similar period in 2021.

In particular, receipts from tea and manufactured goods exports increased by six per cent and 22.8 per cent respectively during the period.

The increase in receipts from tea exports reflects improved prices attributed to demand from traditional markets.

Receipts from horticulture exports declined by 8.5 per cent in the 12 months to June 2022 compared to a similar period in 2021.

Imports of goods increased by 21.7 per cent in the 12 months to June 2022 compared to an increase of 3.6 percent in the 12 months to June 2021, mainly reflecting increased imports of oil and intermediate goods.

Tourism and transportation receipts have increased as international travel continues to improve.

Remittances totaled$4,012 million in the 12 months to June 2022 and were 18.6 per cent higher compared to a similar period in 2021.

While the current account deficit is estimated at 5.3 per cent of GDP in the 12 months to June 2022, it is projected at 5.9 per cent of GDP in 2022 on account of higher international oil prices.

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 14.7 percent in June 2022, compared to 14.1 percent in April.

Bad loan increases were noted in the agriculture, energy and water, manufacturing, and transport and communication sectors.

These increases were not systemic and were attributable to a few large borrowers with specific challenges in their respective businesses.

Banks have continued to make adequate provisions for the NPLs.

Growth in private sector credit increased to 12.3 per cent in June 2022, from 11.5 per cent in April.

Strong credit growth was observed in the following sectors: transport and communication (22.2 per cent), manufacturing (15.2 per cent), trade (11.6 per cent), and consumer durables (14.7 per cent).

The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities.