The Monetary Policy Committee of the Central Bank of Kenya mandated to regulate monetary policy (the aim being to achieve stable prices, that is low inflation, and to sustain the value of the Kenya shilling) met yesterday and resolved to maintain its benchmark rate at 18%. The Central Bank Rate (CBR), the benchmark rate we’re talking about, is the rate at which the central bank lends money to commercial banks, determining, to a large extent the rate at which banks lend to ordinary wananchi.
Facing twin problems of a depreciating shilling (more shillings required to buy one US dollar) and high inflation last year, the Central Bank raised the CBR to tame inflation by reducing consumers’ borrowing from commercial banks because of the high interest rates that were consequently offered by the banks. The monetary policy stance of the CBK seems to be working with inflation reducing to 15.61% as of March.
The Central Bank yesterday decided to maintain the CBR at 18%, as we had predicted, saying “the monetary policy measures put in place continue to yield the desired results: inflation has declined; exchange rate stability sustained; and private sector credit growth has slowed down gradually” in a press release signed by the Central Bank governor and the Chairman of the Monetary Policy Committee Prof. Njuguna Ndun’gu. Concluding the press release, it read in part, “the Committee maintained its monetary policy stance by retaining the Central Bank Rate (CBR) at 18%. This will ensure that inflation continues to decline and towards the Government target while exchange rate stability is maintained.” The Government’s target inflation rate is 9%.
At this time of the year in 2011, the Central Bank Rate was at about 6%. Let’s hope the MPC can get us there. Soon!