CBK faced with tough inflationary presssures ahead of MPC meeting

NAIROBI, Kenya, Jan 26 -The Central bank of Kenya(CBK) is set to hold its first monetary policy meeting in 2022 today at a time the economy is still faced with a disrupted covid-19 recovery coupled with higher inflation. 

The MPC has maintained the CBR at 7 percent since April 2020 following a cumulative 125 bps cut, from 8.25% in January 2020.

During the last MPC meeting held on November 29, 2021, CBK retained the Central Bank Rate (CBR) at 7.00 percent on grounds that there was improved economic recovery and that inflation expectations remained anchored.

The International Monetary Fund in its 2022 world economic outlook acknowledged the tough decision faced by Central Banks in emerging markets when it comes to tightening policies.

IMF said such economies could trade off the benefits of getting ahead of price pressures against the costs of potentially slowing an already subdued employment recovery.

“The timing and extent of responses in emerging markets are uncertain and will be complicated by ongoing developments with the pandemic, both domestically and through imported inflation stemming from international supply disruptions,” IMF said.

IMF noted that the uncertainty in recovery underscores the need to carefully monitor key indicators of future inflationary pressures, including inflation expectations, wage growth, and unit labor and firms’ profit margins, which can foreshadow whether higher cost pressures are likely to be passed on to prices.

In its 2022 outlook, Cytonn investments remained positive that the Monetary Policy Committee (MPC) will maintain the accommodative policy stance taken in 2020 to support the economy from the adverse effects of the pandemic.

“We expect most of these accommodative stances to be tightened, given the increasing global inflation as a result of high oil and energy prices, coupled with persisting supply chain constraints,However, we expect some upward pressure on the interest rates as investors demand a premium for the increased risk and uncertainty posed by the elections,” Cytonn said.