The Central Bank of Kenya.[photo/YouthVillageKenya]
Central Bank’s Monetary Policy Committee meets this week amid speculation that it may retain the benchmark lending rate at 10 per cent on account of low inflation rate and macroeconomic stability.
The team met on November 23, last year, and decided to retain the Central Bank Rate (CBR) for the tenth consecutive time citing favourable weather conditions, low inflation, and sustained macroeconomic stability. Central Bank uses the CBR to guide commercial banks’ lending rates which are pegged at four percentage points above the benchmark rate.
According to Cytonn Investment Management analysis, when MPC meets, two out of six factors used to track the performance of economy appear to be negative, three neutral while only one looks positive.
Liquidity (money supply) has moved from neutral to negative since the last MPC meeting, while inflation has eased to 4.5 per cent from 5.7 per cent and the shilling appreciated by 0.5 per cent over the same period of time.
“We believe that MPC should adopt a wait-and-see approach, given the macroeconomic environment is relatively stable. We, therefore, expect the committee to hold the CBR at 10 per cent,”reads the Cytonn report.
This is the same position which other economists also appear to predict. Stanbic Bank regional economist, Jibran Qureishi, predicts the CBR will be retained at 10 per cent due to favorable weather.
However, Qureishi said the rising cost of fuel in the world market is of concern but remained optimistic that the international oil prices will oscillate within a range of $60 (Sh6,240) to $70 (Sh7,300) per barrel this year adding that the US shale oil industry would increase oil production should Organisation of the Petroleum Exporting Countries prices increase sharply to maintain oil prices.
Jeff Gable, Chief Economist, Barclays Africa Group, said he expects CBK to retain the CBR at 10 per cent despite increased short-term borrowing by the Government.