Kenya's apex bank retains benchmark lending rate at 10 pct

Kenya's central bank (CBK) on Monday retained the country's benchmark lending rate or the Central Bank Rate (CBR) at 10 percent to check domestic and global economic uncertainties as well as inflation.

The CBK's Monetary Policy Committee (MPC) said that inflationary pressures are mild and inflation will remain within the government target range in the short term.

"Following the introduction of interest rate caps on banks lending and deposits, the Committee noted that the available data were inadequate to facilitate a conclusive analysis of their impact on monetary policy and the overall economy," it said in a statement issued in Nairobi.

The retention of the benchmark interest rate at 10 percent means maximum lending rate by commercial banks remains 14 percent, and minimum deposit remains 7 percent.

Month-on-month overall Consumer Price Index (CPI) inflation increased to 6.5 percent in October from 6.3 percent in September, largely due to changes in the prices of food items such as tomatoes and sugar.

According to the MPC, overall inflation remained within the government target range. Month-on-month non-food-fuel increased to 5.4 percent in October from 5.1 percent in September, reflecting increases in the prices of items in the clothing and footwear CPI category and the impact of excite tax introduced in December 2015.

The CBK Governor Dr. Patrick Njoroge said the performance of the economy in the second quarter was strong, growing by 6.2 percent compared to 5.9 percent in a similar period of 2015.

"While the non-bank private sector remains optimistic for higher growth in 2016, banks were cautious as they continue to monitor the potential impact of the capping of interest rates," Njoroge said,

He said the foreign exchange market has been relatively stable despite the volatility in the global financial markets following the U.S. elections, and the seasonal increase in demand for foreign exchange by corporate to finance dividend payments.

"The account deficit is mainly due to power imported petroleum prices, lower imports of machinery and equipment, and resilient Diaspora remittance. Tourism earnings and export receipts from tea and horticulture have stabilized," Njoroge said.

He said the CBK's forex reserves which currently stand at 7.31 billion U.S. dollars (4.8 months of import cover) together with the precautionary arrangements with the International Monetary Fund (equivalent to 1.5 billion dollars) have continued to provide adequate buffers against short-term shocks. Endit