CBK keeps benchmark rate at 7pc amid inflation worries

The Central Bank of Kenya (CBK) has kept the base rate at 7% despite the risk of higher inflation stemming from rising commodity prices.

The Monetary Policy Committee (MPC) of the CBK regulator has kept the benchmark rate unchanged for 22 months after it was lowered to the current rate in April 2020 in a bid to ease credit crunch amid COVID-19 pandemic.

“The Committee noted that inflation expectations remain anchored within the target range supported by the Government’s policy interventions, and leading economic indicators show improved performance. The MPC also noted the elevated global risks and their potential impact on the domestic economy,” said Dr Patrick Njoroge, CBK Governor.

The committee warns of risks arising from inflationary pressures as a result of the ongoing Russia-Ukraine war that has kept commodity prices elevated.

Consumers have seen a sharp rise in essential goods in recent weeks attributed to the conflict which could see inflation rate increase in coming months.

However, MPC expects inflation rate to remain within the target range in the near term, due to muted demand pressures and policy interventions.

“Prices of commodities particularly oil, wheat, and fertiliser have risen sharply as a result of supply disruptions, adding to the already elevated global inflationary pressures,” said Dr Njoroge.

Overall inflation declined to 5.1% last month from 5.4%.

according to the committee, exports continue to rebound recording a 12.1% growth in 12 months to February 2022 supported by higher receipts from horticulture and manufactured goods exports which grew 7.9% and 31.3% respectively.

On the other hand, private sector credit increased to 9.1% in February 2022, from 8.6% in

December 2021.

Strong credit growth was observed in transport and communication at 24.1%, manufacturing 7.6%, trade 8.9%, consumer durables 14%, and business services 11.6%.

“The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities.”