The Kenya Bankers Association Center for Research and Financial Markets and Policy, through its latest released Research Note, recommends that the CBK Monetary Policy Committee (MPC) maintain the CBR unchanged at 9.5% during its meeting that will be held on 29th May 2023
Their recommendation is based on the ease in inflationary pressure to 7.9% in April 2023 from 9.2% recorded in March 2023, the slowdown in economic growth to 4.8% in 2022 from 7.6% growth in 2021, the decreased growth in private sector credit to 11.7% in February 2023 from 12.7% in December 2022, and the sustained widening of the current account deficit that continues to exert pressure on the Kenya shilling exchange rate.
They point out that the MPC decision will be a tradeoff between increasing the CBR rate to tame the high inflation, which is above the government’s target range of
2.5%-7.5%, and easing the CBR rate to support economic activity amidst waning prospects.
“Amidst high inflationary pressures and expectation, and waning economic recovery, a hold on the interest rates would be appropriate”, said KBA.
They note that the expectations of a slowdown in economic growth and the elevated inflationary pressure in 2023 will likely worsen the credit risks further, leading to a deterioration in asset quality, thus slowing down private sector credit loan growth.
The last MPC meeting was held on 29th March 2023, and they decided to raise the CBR by 75.0 bps to 9.50% from 8.75% in their January sitting in a bid to contain the elevated inflation rates, which came in at 9.2% in March 2023 similar to what was recorded in February 2023, and 1.7% points above the CBK ceiling of 7.5%.
