Menu

The Central Bank of Kenya (CBK) has reduced its benchmark interest by 100 basis points to 10.5 percent amid slowing inflation and stronger economic growth.

In a statement released after its Monetary Policy Committee meeting on Monday, the CBK said declining inflation has created the policy space for easing monetary policy while still anchoring inflation expectations.

Kenya’s inflation rate fell to 5.3 percent in April from 6.5 percent in March owing to lower prices of food and fuel. The inflation rate remains within the government’s target range of 2.5-7.5 percent.

“The Committee noted that overall inflation is expected to decline and remain within the government target range in the short-term,” according to the statement signed by Dr. Patrick Njoroge, Governor of the CBK.

Apart from declining inflation, the CBK cited other factors that informed its decision to slash interest rates. The apex bank noted that Kenyan’s foreign exchange market remains stable, supported by a narrower current account deficit due to lower oil imports, improved earnings from tea and horticulture exports, and strong diaspora remittances.

“The current account deficit was estimated at 6.8 percent of GDP in 2015, a reduction of 3 percentage points from 2014, and is expected to narrow further in 2016,” the central bank said.

The CBK also said that the Kenyan economic performance has improved, with a GDP growth rate of 5.6 percent in 2015 as against 5.3 percent in 2014. Furthermore, the apex bank said foreign reserves currently stand at $7.688 billion (equivalent to 5 months of import cover), up from $7.377 billion (equivalent to 4.7 months of import cover) at the end of March 2016.

“These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF) will continue to provide adequate buffers against short-term shocks,” the CBK said.