Central Bank is likely to maintain the current base lending rate at nine per cent during today’s Monetary Policy Committee meeting.
Stanbic Bank regional economist Jibran Qureishi yesterday told the Star the regulator would likely hold the Central Bank rate due to a stable inflationary environment.
“There have been no sustainable risks from the eight per cent VAT of petroleum products and food prices are relatively stable,” he said. “I think the Central Bank will prefer to remain steady for now.”
Since the capping of interest rates that took effect on September 14, 2016, CBK maintained the base lending rate at 10 per cent throughout 2017 before reducing it by 0.5 percentage points in March to 9.5 per cent. The rate was further chopped by another 50 basis points in July to the current nine per cent. Despite the 16 per cent VAT on fuel that was effected in August, the Central Bank maintained the base lending rate at nine per cent. President Uhuru Kenyatta in September halved the tax on fuel products to eight per cent stabilizing transport costs and food prices which had already began to soar under the 16 per cent tax regime.
The MPC, during its last meeting in September highlighted the need to monitor the second-round inflationary effects as a result of the eight per cent VAT on petroleum products and any perverse response to it.
Overall year-on-year inflation for October stood at 5.53 per cent, well under the Central Bank target which ranges between 2.5 and 7.5 per cent. Kenya’s rate of inflation had hit a 10-month high in September at 5.71 per cent up from 4.04 per cent in August. Prior to this, inflation had remained below five per cent since November last year driven by good weather conditions which spurred higher food production and in turn led to lower consumer prices.