MPC decides to retain CBR at 10 percent despite recent skyrocketing inflation
Monetary Policy Committee met this morning to review the impacts of the s decision it made three months ago in line with the recent economic developments. After reviewing several economic factors including the increased inflation, changing weather, expectations of lower food prices in the coming months, and overall macroeconomic stability, the MPC decided to leave CBK’s base rate (CBR) at 10 per cent.
The decision to leave CBR at 10 percent was informed by the realization that on the current high food prices that drove the inflation to 11.5% in April up from 10.3% for March, the government is expected to provide some relief. MPC reasoned that since non-food-non-fuel (NFNF) inflation remained relatively stable below 5 percent, the rains that have been on since mid March should play a big role in easing the pressure on inflation that has largely been driven by decreased food supply.
On forex, the foreign exchange has remained stable as receipts from tourism, coffee and diaspora remittance remain strong. The CBK’s foreign exchange reserves are at an all-time high standing at USD 8.4 billion which should offer buffer for 5.4 months worth of import cover. The government also has a USD 1.5 billion arrangement with IMF as a buffer against short-term economic shocks.
The recent Banking Act capping interest rates was also discussed. The MPC noted that the although the Act propelled many to seek loans, the loans sought were of smaller sizes. The number of loan applications increased by 23.4 percent between August 2016 and April 2017, but the value of loan applications decreased by 18.3%. This then lead to more loans being approved (an increase by 35.7%) but the value of those approved loans declined by 16.3%.
Overall, MPC concluded that overall inflation is expected to remain above the Government target range of 2.5 to 7.5% in the near term due to elevated prices for some food price items. In the meantime, MPC says it will continue to closely monitor developments in the domestic and global economies, and be ready to take additional measures as may deem necessary.
