Central Bank of Kenya Holds Interest Rate at 18.00%

The Central Bank of Kenya kept its benchmark lending rate steady at 18.00%, and held the Cash Reserve Ratio at 5.25%.  The central bank Governor, Njuguna Ndung'u, said: " In view of developments and the need to ensure that inflation declines to levels consistent with the Government's target, the Committee decided to retain the Central Bank Rate at 18.0 percent. This will allow time for the policy measures in place to work out and deliver decisive results on inflation and inflation expectations."


At its December meeting the CBK increased the interest rate by 150bps to 18.00%, after hiking by 550 basis points and raising the Cash Reserve Ratio by 50bps to 5.25%at its November meeting .  That move followed a 400bp increase of the interest rate to 11.00% at its October meeting, after raising 75bps in September, and previously increasing, and subsequently decreasing the discount window rate by 75 basis points to 6.25%.

Kenya experienced annual headline inflation of 18.93 in December, down slightly from 19.72% in November, but still higher than 18.91% in October, 17.3% in September, 16.7% in August, up from 15.5% in July, and up sharply from 9.19% in March this year, according to inflation data from the Kenya National Bureau of Statistics.  The Central Bank of Kenya has an inflation target of 5 percent.  

Kenya reported seasonally adjusted GDP growth of -4.6% in Q2, compared to +2% in Q1.  A Kenyan Ministry of Finance official noted that Kenya is expected to record economic growth around 5-5.5% in 2011, and 6% in 2012.  

The Kenyan Shilling (KES) has weakened about 3% against the US dollar over the past year (having weakened by as much as 31% at the bottom); meanwhile the USDKES exchange rate last traded around 83.63

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