• The MPC is however expecting the cost of living to rise in coming months
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Central Bank of Kenya on Wednesday kept the base lending rate unchanged at nine per cent, meaning banks will continue to lend at a high of 13 per cent.
The Monetary Policy Committee’s decision to retain the base lending rate is coming a week after the High Court declared the Section 33B of Banking Amendment Act, 2016 that introduced interest cap in 2016 unconstitutional.
The committee cited the drop in inflation last month largely due to stable food prices, lower electricity and fuel prices as major reason to retain the lending rate. Kenya’s inflation fell to 4.1 per cent in February from 4.7 per cent in January.
The MPC is however expecting the cost of living to rise in coming months due to a surge in international oil prices which it said may exert moderate upward pressure on prices of fuel.
Even so, it expects the overall inflation to remain within the target range in the near term, in part due to adequacy of food supplies and lower electricity prices with the reduced usage of expensive power sources.
The CBK’s monetary policy committee also said that the economy is operating close to its potential, hence the current policy stance remains appropriate to anchor this growth.
"Non-food-non-fuel inflation remained below five per cent, indicating that there were no demand pressures in the economy,” CBK governor Patrick Njoroge said in a statement.
In the first half of the year, the economy grew at six per cent, compared to 4.7 per cent in the first half of 2017.
The MPC added that there are no immediate concerns about the exchange rate, citing adequate forex cover and healthy inflows from diaspora remittances, tea, tourism and horticulture.