The Central Bank of Kenya (CBK)’s Monetary Policy Committee (MPC) said the monetary policy measures currently in place have continued to moderate inflation expectations.
CBK Governor Patrick Njoroge said the global economic outlook has worsened since January with weaker growth prospects, thus increasing volatility in the financial markets.
“However, the impact of these developments on Kenya is expected to be minimal due to the diversification of its export products and markets, and stable financial linkages,” he said in a statement issued after the monetary policy meeting.
According to Njoroge, month-on-month overall inflation fell to 6.8 percent in February from 7.8 percent in January, thereby returning to within the government’s target range of 2.5 to 7.5 percent, largely driven by development in food and fuel prices.
The month-on-month non-food-non-fuel (NFNF) inflation rose to 5.9 percent in February from 5.5 percent in the previous month, reflecting the revised excise tax on alcoholic beverages and tobacco products, implemented in December 2015.
The contribution to NFNF inflation of the CPI category “alcoholic beverages, tobacco and narcotics” remained unchanged at 1.1 percentage points, mainly due to the revised excise tax.
The MPC said the foreign exchange market has remained stable even as the global markets were volatile and uncertainties in advanced economies.
“Developments in the foreign exchange market are supported by a narrowing current account deficit with improved exports, strong Diaspora remittances, and a lower oil import bill,” the committee said.
CBK’s foreign exchange reserves currently stand at 7.38 billion (equivalent to 4.7 months of import cover) up from 7.02 billion (equivalent to 4.5 months of import cover) at the last MPC Meeting.
The MPC said the approval of 1.5 billion dollars by International Monetary Fund (IMF) covering two years, reflects confidence in the country’s macroeconomic policies and provides additional buffers against short-term shocks.
According to MPC, the banking sector remains stable and resilient. However, the CBK continues to closely monitor the sector, particularly concerning credit risk as reflected in an increase in non-performing loans.
Liquidity in banks and its distribution has normalized, but further work is needed to strengthen liquidity management and operations of the inter-bank market, MPC said.
The MPC Market Perception Survey conducted in March shows that the private sector maintains its optimism for improved business conditions and high growth in 2016.
“These sentiments are underpinned by macroeconomic stability, continued public investment in infrastructure, and the improved performance of agriculture, especially horticulture and tea,” MPC said. Enditem