CBK to hold key policy rate at 7%, says Genghis Capital

The Central Bank of Kenya(CBK) top policy-making organ, the Monetary Policy Committee(MPC), is expected to have the Central Bank Rate(CBR) unchanged at 7% when it meets this Wednesday, 28th July 2021. It will be the 9th time the MPC is holding the CBR steady.

CBK last retained the CBR at 7% in May

In its weekly bulletin, Genghis Capital said this view is guided by inflation expectations that remain anchored. However, there is exists some upward bias on account of the base effect of this quarter.

COVID-19 still poses a layer of uncertainty, with the cumulative total number of cases reported at 197,000 as of 25th July 2021.

” Thus, we are of the view that policy makers will pencil in sluggish growth due to COVID-19 fallout,” said the Research Note from Genghis Capital.

The World Bank and International Monetary Fund(IMF)-have slashed Kenya’s 2021 growth projections with their reports indicating that Kenya’s economic recovery will depend on how fast it rolls out the COVID-19 vaccination program.

According to researchers at Genghis Capital, activity in the Secondary Bond Market declined by 27.6% last week to a turnover of KSh 17.7Billion, with most trades executed on the infrastructure bond segment coupled with the short-to-medium end of the yield curve.

T-Bills subscriptions at the weekly auctions hit a performance rate of 69.6%- the lowest in 12 weeks. Already, the 91-day and 182- day T-Bill tenors interest rates are below the benchmark policy rate, whereas the 364- day tenor is just 43bps higher.

This scenario of lower yields in the discounted securities is a function of the elevated liquidity and was further confirmed with the liquidity indicators.

The average interbank rate fell 80 basis points to 3.28%, and on lower weekly volumes of KSh 13.7Billion, a decline of 39.3% week on week in the holiday-shortened week.

The CBK was active in the open market operations, mopping up an aggregate KSh 79.05Billion in excess liquidity via Term Auction Deposits.
“The focus in the week still remains at the short-end of the curve, against the backdrop of the CBK Monetary Policy Committee (MPC) meeting,” said Genghis Capital.

Keenly watched will be inflation figures to be released on 30th July 2021 and the results of the Weekly Treasury Bills Auction, to be held this Thursday.

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