The CBK's Monetary Policy Committee has retained the base lending rate at seven per cent on accommodative policy stance and stable inflation.
According to CBK, inflation expectations remained well anchored within the target range.
Overall inflation stood at 6.3 per cent in June compared to 5.9 per cent in May, this is within the set limit of 7.5 per cent.
The apex bank however noted that the economy is still operating below its potential level.
The MPC met on July 28, 2021, against a backdrop of the continuing global Covid-19 pandemic, the continued rollout of vaccination programmes, and other measures taken by authorities around the world to contain its spread and impact.
The Committee said that leading indicators for the Kenyan economy point to a relatively strong GDP recovery in the first half of 2021, mainly supported by the strong performance of construction, information and communication, education, and real estate sectors
The MPC’s Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels, revealed general optimism about economic growth prospects for 2021.
Respondents attributed this optimism to the continuing vaccinations and easing of Covid-19 containment measures.
Additionally, respondents were optimistic about the expected implementation of measures in the FY2021/22 Budget, including the economic stimulus programme and the continued investment in infrastructure.
However, respondents were concerned about continued uncertainties over the pandemic, increased taxes and heightened political activity.
The Committee noted the improved revenue performance in FY2020/21 and a provisional fiscal deficit of 7.8 per cent of GDP.
Additionally, the rollout of the FY2021/22 Budget was noted, including the Economic Recovery Strategy which is expected to support domestic demand.
The MPC reiterated that implementation of the reforms outlined in the White Paper published on July 27, 2021, would enhance the effectiveness of the monetary policy, and support anchoring of inflation expectations.
These reforms will focus on refining macroeconomic modeling and forecasting frameworks in line with changing structure of the economy, improving the functioning of the interbank market in order to strengthen monetary policy transmission and operations, and continued improvement of communication on monetary policy decisions.
"We will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stand ready to take additional measures as necessary," said CBK Governor Patrick Njoroge.
The Committee will meet again in September 2021, but remains ready to re-convene earlier if necessary.
