Inside Politics

MPC set to hold base interest rate

Thursday, November 26th, 2020 00:00 |
Central Bank of Kenya.

Central Bank of Kenya (CBK) is expected to hold stance on interest rates tomorrow due to muted inflation expectations and an ugly second quarter reports, analysts have said.

The regulator feels that it has almost exhausted monetary policy options having cut interest rates and reduced the cash reserve ration, adding that cutting the base rate again may not have positive consequences, due to low demand.

The CBK Monetary Policy Committee (MPC) is set to meet today for its interest rate decision and overall economic review.

Inflationary pressure

“Muted inflationary pressure signals neutral policy stance. The point is, there has been no robust credit mediation in light of the ongoing pandemic,” Genghis Capital said in an investor brief.

The investment firm said for the next two months, inflation is expected to stay below 5 per cent, due to sluggish demand.

“We don’t expect inflation pressure to flare up in the near-term. October inflation (4.84 per cent) bucked the disinflation trend that was salient in the prior 4 months,” the report noted.

The head of corporate banking at ABC Capital Johnson Nderi said due to various factors at play such as low demand, cutting interest rates may not help, and could reduce the risk premiums on loans and make it attractive to lend to the government instead of the private sector. “

I don’t think it makes a difference,” he said.

Already Kenyan has one of one of the lowest interest rates on the continent. The meeting will be against the backdrop of Covid-19 shock and its spillover to the economy.

The last MPC meeting was on September 29, and maintained the base rate at 7 per cent for the fourth consecutive neutral policy stance.

In the rear mirror, the MPC meeting will be looking at a second quarter GDP growth of -5.7 per cent and an overall economic growth outlook of 0.6 per cent for the year, according to Treasury CS Ukur Yattani’s most recent estimates. Borrowing by the private grew by 7.6 per cent in the 12-month ending September 2020.  

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