Opinion split on monetary stance as MPC meets

Analysts are divided over the likelihood of central bank’s rate-setting Monetary Policy Committee (MPC) keeping the policy benchmark at nine percent at its meeting scheduled for today amid rising inflation risks.

During the last sitting on March 27, the MPC retained the signal rate at 9.0 percent, sparing borrowers higher cost of loans amid mounting defaults and bankers reduced appetite for lending to individuals and small enterprises.

The cost of living hit a 19-month high in April after inflation rate jumped to 6.58 per cent, the highest since September 2017.

The Kenya National Bureau of Statistics (KNBS) said earlier the rise was due to an increase in food prices, pushed up by drought, which has ravaged the country since last year.

One analyst interviewed tipped the MPC to keep the key rate at nine percent while another expects a cut of about 50 percent.

Stanbic Bank Regional Economist for East Africa Jibran Qureshi said there was a likelihood of a retention as the MPC adopts a wait-and-see stance.

“Despite the recent rise in inflation, we suspect the MPC will closely monitor whether demand-driven inflationary pressures are heating up or not,” said Stanbic Bank regional economist for East Africa Jibran Qureshi.

“But given the downside risks to economic growth, it will be interesting to see if the committee retains its comment that the economy is operating close to its potential at this communique.”

Private sector credit grew just 3.4 percent in the year to February, well below CBK’s target rate of 12-15 percent needed to support economic development

“I see rates being steady 75 percent, (and a) cut by 50 basis points 25 percent. The economy needs a boost badly, and the MPC can play a role particularly as the government is likely to squeeze even harder on the tax side,” said Deepak Dave, a risk management expert with Nairobi based Riverside Capital Advisory.

And in a research note, Sub-Saharan focused FocusEconomics analysts predicted a neutral stance.