Kenya central bank holds benchmark rate, says inflation is stable

Source: Zawya.com

NAIROBI - Kenya's central bank held its benchmark lending rate at 13.0% on Wednesday, saying inflation was stable within its near-term target range, and it aimed to keep exchange rate stability.

It is the second time running that the central bank has held its rate, after leaving it unchanged in April. It had hiked rates in December and February to stabilize the exchange rate, and help curb stubborn inflation.

"The Monetary Policy Committee (MPC) concluded that the current monetary policy stance will ensure that overall inflation remains stable around the mid-point of the target range in the near term, while ensuring continued stability in the exchange rate," the central bank said in a statement.

Inflation, which had remained on the higher side of the government's preferred band of 2.5-7.5% for months, rose slightly to 5.1% in May from 5.0% a month earlier.

In August, the bank introduced a new interest rate corridor to help guide short-term market interest rates towards the central bank policy rate. It had set the rate at plus or minus 250 basis points around the policy rate.

On Wednesday, the bank lowered the rate to plus or minus 150 basis points around the policy rate.

The bank said it had also adjusted the discount window rate to 300 basis points above the central bank rate from 400 basis points previously. The discount window rate is what it charges commercial banks who borrow from the regulator as a last resort.

The Kenyan shilling has stabilised against the dollar after the government successfully raised $1.5 billion from international markets in February to partially buy back another bond that is maturing in June.

The central bank said it expects robust economic performance in 2024, despite the widespread flooding earlier in the year.

"The economy is expected to remain strong in 2024, supported by the resilient services sector, robust performance of agriculture sector, and continued implementation of government measures to boost economic activity across priority sectors," the central bank said.

Official statistics show Kenya's economy grew 5.6% in 2023 from 4.9% the previous year.

(Reporting by George Obulutsa Editing by Bate Felix, Toby Chopra and Sriraj Kalluvila)