Kenya Central Bank Holds Rate As Previous Cuts Are Working

Kenyas central bank held its key interest rate for the fourth straight meeting as policy measures including 150 basis points of cuts are having the intended impact on the economy.

The monetary policy committee maintained the rate at 7%, Governor Patrick Njoroge said Tuesday in a statement. That matched the estimate of all five economists in a Bloomberg survey.

Key Insights:

• Inflation remained at 4.4% in August and is expected to stay inside the central banks target range of 2.5% to 7.5% in the near-term, Njoroge said. That is thanks to lower food prices, the impact of the reduction of value-added tax and muted demand pressures.

• The MPC decision comes a day before the release of second-quarter gross domestic product data. The economy probably contracted by 2.6% in the three months through June from a year earlier, according to the median estimate of six economists in a Bloomberg survey. However, economic indicators for the third quarter point to a strong recovery in activity, Njoroge said.

• Private-sector credit grew by 8.3% in the 12 months to August, “supported by continued recovery in demand from Covid-19 related disruptions and the accommodative monetary policy,” Njoroge said. There was “strong growth” in lending in sectors including manufacturing, transport and communications, trade, and consumer durables.

• The ratio of bad loans stood at 13.6% of total credit in August compared with 13.1% in June due to a subdued business environment.

• Banks restructured 1.12 trillion shillings ($10.3 billion) of the sectors total loan book by the end of August due to the virus.

• Receipts from services exports remained subdued, declining by 22.4% in the eight-month period through August, reflecting weaknesses in international travel and transport.

• Exports of goods grew 0.8% in the eight-month period through August, helped by increased shipments of tea and flowers.

— With assistance by Paul Richardson, Rene Vollgraaff, and Simbarashe Gumbo

(Updates with private-sector growth, bad and restructured loans and exports from third bullet.)

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