The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) is set to meet on Tuesday. This follows the MPC’s decision to maintain the interest rate at 9.00% on September 25.
This was amidst rising inflation expectations and the reintroduction of Value Added Tax (8.0%) on petroleum products.
The Monetary Policy Committee has indicated a neutral stance, allowing time to assess the effects of these changes on price stability and the economy’s response to its previous decisions.
Despite slow growth in private sector credit, the macroeconomic environment remains relatively stable with improved growth compared to last year.
However, October’s Stanbic Bank Kenya Purchasing Managers’ IndexTM (PMITM) showed a stronger improvement in operating conditions, particularly in export demand, new projects, and favourable weather conditions boosting output.
The International Monetary Fund (IMF) has suggested that the shilling risks be classified as “managed” rather than operating on market forces of demand and supply. However, the CBK maintains that the Kenya shilling reflects the currency’s true value.
Analysts expect the shilling to remain relatively stable against the dollar in the short term, supported by improved diaspora remittances, stronger inflows from exports, and high levels of forex reserves.
However, increased dollar demand by companies in various sectors has led to a depreciation of the shilling against the US dollar.
As a result, Kenya’s forex reserves have fallen by 8.9% to USD 8.1 bn since the start of FY 2018/2019 in July. Since September 25, the shilling’s exchange rate against the dollar has moved from 100.85 units to 102.35.
Economists expect a cautious stance from the MPC at its upcoming meeting. While some predict a continuation of the current policy rate at 9.00%, others suggest that the MPC should adopt a wait-and-see approach given the current macroeconomic environment.
Read
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