Central Bank of Kenya Holds Interest Rate at 13% as Inflation Eases and Shilling Strengthens

Central Bank of Kenya Holds Interest Rate at 13% as Inflation Eases and Shilling Strengthens

The Central Bank of Kenya (CBK) has decided to maintain its interest rate at 13%, indicating a possible shift towards lowering borrowing costs in light of improving economic conditions.

The decision comes as inflation eases and the Kenyan shilling strengthens against major global currencies.

Inflation Eases to Two-Year Low

The CBK announced that headline inflation has eased to 5.7%, the lowest level in two years. This decline is attributed to reduced costs of essential food items such as maize flour, wheat flour, and various vegetables.

The moderation in inflation reflects positive developments in the economy, providing room for potential adjustments in monetary policy.

Cautious Optimism Despite Exchange Rate Stability

Despite the Kenyan shilling rallying against the dollar and inflation easing within the CBK’s target range of 2.5% to 7.5%, the Monetary Policy Committee (MPC) exercised cautious optimism.

The committee noted that previous measures have been effective in lowering inflation and stabilizing the exchange rate.

Consequently, the current monetary stance aims to sustain the downward trend in inflation towards the target midpoint of 5.0%.

Shilling Strengthens, Addressing Import-Driven Inflation

The Kenyan shilling has appreciated by 18% against the dollar, mitigating inflationary pressures caused by imports.

The CBK reported a significant strengthening of the shilling, quoting it at KES 131.48 compared to a record high of KES 160.18 in February.

This appreciation reflects improved market sentiment and contributes to overall economic stability.

Positive Economic Outlook for First Quarter of 2024

Leading economic indicators suggest continued strong performance of the Kenyan economy in the first quarter of 2024.

Key sectors such as agriculture, services, and information and communication technology (ICT) are expected to drive growth.

The March 2024 Agriculture Sector Survey forecasts a decline in food prices over the next three months, supported by favorable weather conditions, a stronger shilling, and lower fuel prices.

Prospects for Economic Recovery

The CBK’s decision to maintain the interest rate underscores its commitment to supporting economic recovery and fostering stability.

With inflationary pressures easing and the shilling gaining ground, Kenya is poised for sustained growth and resilience in the face of global economic challenges.