Menu

The Central Bank of Kenya (CBK) has retained its benchmark interest rate at 10.5 per cent to forestall inflationary pressure as a result of a recent increase in fuel taxes, according to a statement released on Monday at the end of the bank’s Monetary Policy Committee meeting.

The CBK had slashed interest rates in May by 100 basis points from 11.5 per cent to 10.5 per cent, citing falling inflation, stronger outlook for the domestic economy, and buoyant foreign exchange reserves.

Last month, the Kenyan National Bureau of Statistics reported that the country’s inflation rate rose to 5.8 per cent in June from 5 per cent in May because of higher levies on products, including cars and fuels. (The rate is still within the government’s target range of 2.5 per cent to 7.5 per cent).

“The Committee concluded that although demand pressures on inflation remain moderate, the effects of the recent increase in fuel tax were expected to exert temporary upward pressure on consumer prices,” the CBK said in the signed by Governor Patrick Njoroge.

In the first quarter of 2016, Kenya’s economy grew by 5.9 per cent compared to 5 per cent in a similar period last year partly due to a recovery in tourism – one of the country’s biggest foreign exchange earners. The central bank said foreign exchange reserves currently stand at $7.79 billion or 5.1 months of import cover, up from $7.682 billion at the end of May 2016.

“The foreign exchange market has remained stable, reflecting a narrower current account deficit due to a lower import bill, improved tea and horticulture exports, and stronger diaspora remittances,” the apex bank said. “The stability was also supported by the CBK’s closer monitoring of the market before and after the U.K. vote to leave the European Union.”

The CBK said it has reviewed the Kenyan Bank Reference Rate, on which local banks base their lending rates, to 8.9 per cent, down from 9.87 per cent.

“The CBK will continue to monitor developments in the domestic and international economies, and will use the instruments at its disposal to maintain overall price and financial sector stability,” the apex bank noted.