NAIROBI: The Central Bank’s Monetary Policy Committee, yesterday retained its key lending rate at 11.5 per cent for the third time in a row in line with analysts’ forecast.
MPC chairman Patrick Njoroge said measures taken at its last meeting on September 22 had stabilised the market, except for the significant rise in the Treasury bills. Njrogoge said he expected banks to withdraw their notices to increase interest rates, a move already taken by Equity, Barclays and Standard Chartered banks.
“The CBK is closely monitoring the sector and continues to address and support financial stability,” Njoroge said. “In particular, it notes the recent reduction in short-term interest rates and expects them to be transmitted to commercial lending rates.”
The 91-day T-bill peaked at 22.5 per cent on October 22 due to a Sh45 billion shortfall in the Sh385 billion targeted tax revenues in four months to October.
The signing of a Sh61.20 billion ($600 million) international syndicated loan on October 29 has, however, helped slow down government’s domestic borrowing, bringing down the 91-day T-bill yield to 9.65 per cent at last week’s auction.
Njoroge said the core inflation, which excludes food and fuel and which the CBK has control over, has declined to 2.5 from 3.4 per cent over the last three months despite rising to 4.8 last month from 4.7 per cent in September.
Overall inflation is also still within the 2.5 to 7.5 per cent target range, despite rising to 6.72 per cent last month from 5.97 per cent. “The Committee concluded that the monetary policy measures in place are appropriate to maintain market stability and anchor inflation expectations,” the governor said in statement in the evening.
Analysts had warned lowering the CBR rate, last set on July 7, would have exerted renewed pressure on the shilling which has appreciated by 2.96 per cent since CBK’s last meeting in September through yesterday’s opening levels of 102.24.
“If it [CBR] came down, I would be scared because the risk on the currency is still there,” chief investment officer at Cytonn Elizabeth Nkukuu said on phone on Monday. “But for banks, the cost of funding is not that bad and we are likely to see them maintaining their lending rates or gradually bringing them down.”
Further shortfalls in revenue targets without implementation of budget cuts, pledged by Treasury CS Henry Rotich on October 19, Nkukuu warned, could lead to renewed pressure on the T-bill rates.
Njoroge however reassured that the CBK was working closely with the Treasury to strengthen the coordination of monetary and fiscal policies to support overall macroeconomic stability.
