The Monetary Policy Committee (MPC) Tuesday held the Central Bank Rate (CBR) at 11.5 per cent as analysts had predicted earlier on Monday.
MPC Chairman and Central Bank Governor Patrick Njoroge said measures including raising CBR and mopping liquidity have worked well to stabilise the shilling hence the freeze on the interest rate.
“The Committee observed that the measures taken in the previous meetings had continued to bring inflation nearer to the 5 per cent target. However, the persistent turbulence in the global financial markets remain a risk to the inflation outlook, and its impact on the exchange rate should be monitored,” Mr Njoroge said in a statement.
The financial regulator showed bias on inflation which had fluctuated within limits dropping to 5.8 percent in August 2015, from 6.6 percent in July and moving closer to the 5 percent target.
“The decrease in inflation was due to lower food prices and moderating demand pressures, partially offsetting the pass-through effects of exchange rate movements,” noted the MPC.
CBK also moved to assure the market of her adequate foreign exchange reserves after the regulator reportedly spent close to $1 billion in trying to arrest the shilling slide risking a depletion of the reserve.
FOREIGN EXCHANGE RESERVES
“The CBK’s foreign exchange reserves stand at $6,183.6 million, which together with the precautionary arrangements with the International Monetary Fund continue to provide an adequate buffer against short-term shocks,” Mr Njoroge stated.
Analysts had predicted that the increased yields in the short and long term T-Bills, the zero move on interest rates by the US Federal Reserve and the relatively stabilising shilling would inform MPC’s move not to amend the CBR.
The shilling which earlier this month neared its 2011 weakest rate against the dollar closed at 105.55/65 to the dollar Tuesday, compared to Monday’s close of 105.35/45.