Kenya holds rate as stance credible despite inflation rise

    Kenya's central bank held its Central Bank Rate (CBR) steady at 8.50 percent, saying the monetary policy path is continuing to anchor inflationary expectations and remains credible despite the slight rise headline inflation in April.
    The Central Bank of Kenya (CBK), which has maintained its rate since May 2013 after cutting it by 250 basis points in the first months of the year, added that the exchange rate of the shilling continued to fluctuate within a narrow range in April, helped by a rise in diaspora remittances due to a strengthening global economy which also helped boost foreign exchange reserves.
    Remittances from workers abroad rose to their highest level so far to US$ 119.59 million in March, up from $110.42 million in February, helping moderate the impact of foreign investors' participation in the stock exchange, where the main index rose by 0.25 percent in March, the bank said.
    Overall confidence in Kenya's economy remains strong, the bank said, with the bank's market perception survey in April showing that the private sector expects strong growth this year with inflation and the exchange rate stable for the rest of the year.

    Kenya's headline inflation rate rose to 6.41 percent in April form 6.27 percent in March was largely due to higher transport costs, the bank said. The measure of non-food-non-fuel inflation, a more direct gauge of the CBK's policy, eased to 4.53 percent from 4.98 percent in the same period.
    Last year Kenya's consumer prices rose by 5.7 percent and the International Monetary Fund forecasts 6.6 percent inflation this year and 5.5 percent in 2015. The CBK targets inflation of 5.0 percent, within a 2.5 percentage point range.
    Kenya's usable foreign exchange reserves rose to $6.339 billion at the end of April, the equivalent of 4.37 months of imports, from $6.213 billion end-March.
    Kenya's shilling has been weakening since October 2013 but is down only 0.70 percent against the U.S. dollar this year, trading at 87.05 to the dollar today.
    The CBK added that the government's domestic borrowing program in the current fiscal year was consistent with the medium-term debt strategy and it has taken note of increased investor appetite for longer-dated domestic debt instruments that has helped lower refinancing risks.
    Kenya's banking sector remains solvent and resilient, based on the latest stress tests, with annual growth in private sector of 22.66 percent in March, up from 21.46 percent in February, but the CBK said it was monitoring this growth to ensure it doesn't trigger any demand inflation pressure or adverse inflationary expectations.
    The ratio of non-performing loans to gross loans fell to 5.6 percent in March from 5.8 percent in February, with the combination of declining credit risk and rising private sector growth helping support private investment and growth, the bank said.
    Kenya's Gross Domestic Product expanded by 1.6 percent in the third quarter of 2013 from the second quarter and the International Monetary Fund has estimated full-year growth of 5.6 percent. This year the IMF forecast growth rising to 6.3 percent and the same rate in 2015.

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