The Monetary Policy Committee (MPC) of the Central Bank of Kenya met yesterday to review market developments and evaluate the outcome of its monetary policy stance. The committee observes that the previous monetary policy measures supported by the appropriate fiscal policy continue to deliver the desired outcomes of a gradual decline in inflation and inflationary expectations as well as exchange rate stability.

• Information available to and analysed by the MPC revealed that overall month-on-month inflation declined from 15.61% in March 2012 to 13.06% in April 2012. Non-food-non-fuel inflation declined from 11.26% to 9.94%.

• Exchange rate stability has been maintained with the Kenya shilling fluctuating between a narrow belt of KES 83.07 and KES 83.37 against the dollar in April 2012. The International Monetary Fund extended an equivalent of $111 million under the Extended Credit Facility programme in April increasing the CBK’s foreign exchange reserves to slightly over 4 months of import cover.

• Diaspora remittances increased from $89.76 million in January 2012 to $103.98 million in February and further to $106.40 million in April 2012, underscoring confidence in the economy.

• Private credit growth eased from 26.05% in February 2012 to 24.01% in March 2012 helping ease inflation.

The committee observed that there were several risks the economy faced attributed to the following drivers:

- An underlying inflationary pressure from food and fuel prices that resulted in an increase in the overall 3-month annualised inflation from 7.65% in March 2012 to 9.22% in April 2012.

- Though non-food-non-fuel inflation eased in April, it was still above the government’s short-term inflation target of 9% for the fiscal year 2011/12.

- Rising international crude prices in March 2012 to $127.0 per barrel increased the current account deficit to an estimated 13.6% of GDP and this continues to pose a threat to both exchange rate stability and the continued easing of inflation pressure.

In view of the above considerations, the MPC resolved to maintain the current monetary policy stance to ensure that inflation continues to declines towards the target and to sustain the current exchange rate stability. The Central Bank Rate remains at the current 18% and in order to ease the pressure on interest rates, the CBK will enhance its monetary policy operations to stabilise the daily interbank rate.