Kenya's central bank kept its Central Bank Rate (CBR) at 10.0 percent, as expected, saying its current policy stance had reduced the threat of demand-driven inflation, which is still expected to remain above the government's target in the near term due to higher prices of some food items.
The Central Bank of Kenya (CBK), which has maintained its rate since cutting it to the current level in September 2016, added recent rains and intervention by the government are expected to provide some relief to the recent rise in food prices, with non-food, non-fuel inflation stable at 5.0 percent, suggesting that demand pressures and pass-through of higher food prices are muted.
Kenya's headline inflation rate rose to 11.5 percent in April from 10.3 percent in March to the highest level since May 2012 as drought pushed up prices of maize flour, sugar, kales and tomatoes.
Kenya targets inflation of 5.0 percent, plus/minus 2.5 percentage points.
But Kenya's shilling has remained stable this year, supported by a narrower current account deficit as tourism, coffee exports and remittances from abroad have remained strong. Tea and horticulture has remain resilient despite lower export volumes from adverse weather in the first quarter.
The shilling was trading at 103.3 to the U.S. dollar today, down 1 percent this year.
The CBK added its foreign exchange reserves were at all-time high levels and currently at US$8.239.9 billion, or 5.4 months of imports, up from $7.716.4 billion end-March. Together with IMF arrangements of $1.5 billion, this continues to "provide a buffer against short-term shocks."
In September last year Kenya's government imposed a cap on banks' interest rates and the CBK said a May private market perception survey showed marginally weaker expectations for economic growth from its March survey due to the impact of drought and a slower private sector growth.
Data shows that the number of loan applications rose by 23.4 percent from August 2016 to April 2017, but the value of the applications fell by 18.3 percent. Loan approvals rose 35.7 percent while their value fell by 16.3 percent, the central bank said.
However, the central bank added that credit to private households, manufacturing, and real estate had picked up in March and April this year.
Kenya's economy expanded by 5.8 percent in 2016, up from 5.7 percent in 2015.
