Kenya’s Central Bank maintains lending rate at 7%

The Central Bank of Kenya has decided to maintain its benchmark interest rate at 7% during the September Monetary Policy Committee meeting. This decision marks the ninth consecutive meeting in which the bank has kept rates unchanged, aligning with market expectations. Eva Otieno, Principal of Africa Strategy at Standard Chartered Bank, expressed a similar view and expectation, emphasizing the crucial role of the Central Bank in supporting economic recovery in the face of the ongoing COVID-19 pandemic. Otieno highlighted that the Central Bank's decision to hold the policy rate steady at 7% is aimed at bolstering private sector credit growth. Recent data indicates a moderate improvement in private sector credit growth, with a rise from 6.1% in July to 7% in August. This uptick is seen as a positive sign for economic recovery in 2021, especially considering the contraction experienced in 2020 due to the pandemic. As the economy gradually reopens and activity picks up, it is anticipated that credit growth will continue to increase. Inflationary pressures have been on the rise, both domestically and internationally. Otieno explained that inflation in Kenya rose to 6.9% in September from 6.6% in August. Contributing factors include tax measures, such as increases in fuel prices, and the global surge in oil prices. Food inflation has also been climbing, impacting essential food-related commodities. While current inflation rates remain below the Central Bank's upper band of 7.5%, there is vigilance regarding potential second-round effects on prices in other sectors of the economy. Kenya's foreign reserve position appears robust, with approximately $9.5 billion in foreign exchange reserves, equivalent to 5.8 months of import cover. This figure offers a sense of stability and security, further bolstered by the recent injection of special drawing rights allocations. The country's reserves have benefited from the global allocation of these funds, with Kenya's reserves increasing by around $740 million. Looking ahead, the Central Bank of Kenya projects economic growth of approximately 6.1% for the year. Otieno attributed this growth primarily to a technical rebound following the economic challenges faced in 2020. This bounce-back effect, influenced by the low base of the previous year, is expected to drive growth not only in Kenya but also globally. As economies strive to recover from the impact of the pandemic, the anticipated economic growth in 2021 signals a potential return to stability and expansion.