- Bank cites adequate forex cover, well anchored inflation rate and stable shilling
- Says release of maize stocks from Strategic Grain Reserve will support stability of food prices
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The Central Bank of Kenya yesterday kept the base lending rate unchanged at nine per cent.
This means banks will continue to lend at a high of 13 per cent.
The CBK’s Monetary Policy Committee cited adequate forex cover, well anchored inflation rate and stable shilling as reasons for maintaining the base lending rate.
It is however vigilant on possible spillovers of recent food and fuel price increases on inflation, which is expected to remain within the target range largely due to expectations of lower food prices following improving weather conditions.
"Food inflation rose to 7.7 per cent in April from 2.9 per cent in March. However, non-food-non-fuel (NFNF) inflation remained below five per cent, indicating that demand pressures and the spillovers of the rise in food and fuel prices were muted," MPC statement read.
It expects release of maize stocks from the Strategic Grain Reserve to support the stability of food prices.
According to the committee, foreign exchange market has remained stable supported by the narrowing of the current account deficit to 4.5 per cent of GDP in the 12 months to April 2019 from 5.5 per cent in April 2018.
The MPC also said the economy is operating close to its potential, so the current policy stance remains appropriate to anchor this growth.
Private sector credit grew by 4.9 per cent in the 12 months to April, compared to 4.3 per cent in March. Strong growth in credit to the private sector was observed in the manufacturing (7.9 per cent); trade (8.4 per cent); finance and insurance (13.3 per cent); and consumer durables (16.4 per cent).
Credit to the sector is expected to continue to strengthen in the remainder of 2019.
Although the banking sector remained stable with average commercial banks’ liquidity and capital adequacy ratios at 51.0 per cent and 18.3 per cent, respectively, in April, number of borrowers defaulting on loans increased slightly.
According to the MPC statement, the ratio of gross non-performing loans (NPLs) to gross loans stood at 12.9 per cent in April compared to 12.8 per cent in February, reflecting increases mainly in the personal, real estate and manufacturing sectors.
The MPC’s decision to retain the base lending rate comes amid pressure on parliament to reverse the law capping interest rates at four per cent above Central Bank Rate after the High Court declared Section 33B of the Banking Amendment Act, 2016 unconstitutional.