The Monetary Policy Committee (MPC) of the Central Bank of Kenya yesterday had its monthly meeting and it decided to maintain the Central Bank Rate (CBR) at 18 percent.
MP who?
The job of the MPC is to develop and implement policies that are directed to achieve and maintain stability in the general level of prices (inflation). The committee, consisting of very well read technocrats and chaired by the Governor of the CBK Prof Njuguna Ndung’u yesterday met and it decided to maintain the rate at 18 percent for the sixth straight month. The rate is the one at which the Central Bank lends to commercial banks.
The Central Bank last year raised the CBR several times, from 5.75% in January 2011 to 18% in December 2011 to stop and reduce the effects of a weakening shilling that caused inflation rise to over 20 percent. The rate has been maintained at 18% since December 2011 and while inflation has reduced significantly, the CBK has chosen to maintain its position.
Why?
MPC has attributed the maintenance of the rate to a resurgence of turbulence in world markets in May 2012, caused mainly by instability in Europe that has led to the US Dollar strengthening globally as investors shift from the Euro to assets held in dollars. The Kenya Shilling indeed has weakened against the Dollar (or rather, the US Dollar has strengthened depending on how you look at it) and the MPC has recognised that this could cause inflation to increase. The CBK also recognises that, while the economy is growing, there remains potential threats and risks with inflation still above the government short-term target of 9 percent, the Kenya Shilling remaining vulnerable to external shocks (as we have seen with the recent events in Europe) and the high international oil prices (though they have reduced slightly).