CBK faces virus litmus test for second month

The Central Bank of Kenya (CBK) will face a fresh test at the monetary policy meeting today as the economy continues to be battered by the Covid-19 pandemic.

The apex bank is expected at the Monetary Policy Committee (MPC) meeting to assess the impact of a raft of measures it rolled out on March 23 to help the economy blunt and navigate the effects of the pandemic while possibly announcing new ones.

Kenya on Monday confirmed eight new cases of coronavirus, bringing the total to 363.

At the last meeting, the CBK cut its benchmark rate by the largest margin in three-and-half years and lowered the statutory deposits by banks to boost flow of cash in an economy plagued by the pandemic.

The benchmark rate was cut by one percentage point to 7.25 percent, a pointer of policy bias towards cheaper loans while the cash reserve ratio for commercial banks dropped to 4.25 percent from 5.25 percent.

“We expect them to maintain the CBR at 7.25 percent as the effects of the previous rate cuts are yet to be felt in the economy,” said AIB capital in a pre MPC research note this week,

Cytonn analysts, however, expect more cuts.

“We expect the MPC to reduce the Central Bank Rate by 25 bps to 7.00 percent from 7.25 percent.

“This decision will be driven by factors such as cost-push inflation which continues to be a threat to the economy due to the locust invasion which has plagued the country since the end of 2019.”