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Central Bank slashes KBRR rate by 10 percent as CBR retained at 10.5 percent

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The Central Bank of Kenya (CBK) retained the Central Bank Rate (CBR) at 10.5 percent after the Monetary Policy Committee (MPC) committee met today. This, according to CBK, is to “anchor inflation expectations and maintain market stability”. The MPC also slashed the Kenya Banks’ Reference Rate (KBRR) from 9.87 percent to 8.90 percent, effective from July 25, 2016.

“The CBK will continue to monitor developments in the domestic and international economies, and will use the instruments at its disposal to maintain overall price and financial sector stability,” said MPC Chairman and CBK Governor Dr. Patrick Njoroge. The CBR rate has remained low since the MPC slashed it from 11.50 in April this year.cbr2The reduction of KBRR is expected to translate to cheaper loans as banks respond by lowering their interest rates on loans. This, however, remains to be seen as banks have in the past not responded to the KBRR revisions by the Central Bank of Kenya. The retention of CBR is expected to help slow down inflation.

The MPC also announced today that inflation rose in June to 5.8 percent from 5.0 percent in May. Food and non-alcoholic beverages accounted for most of the rise in inflation in June as it rose from 2.8 percent in May to 3.8 percent. On the other hand, non-food fuel inflation dropped from 5.4 percent in May to 5.0 percent in June. Overall, the increase in inflation means that food is now more expensive than before. While the inflation remains within the Government target range, it is expected to rise as the country goes into a general election next year.

“The Committee concluded that although demand pressures on inflation remain moderate, the effects of the recent increase in fuel tax were expected to exert temporary upward pressure on consumer prices. Nevertheless, overall inflation was expected to remain within the Government target range in the short term,” says Dr. Njoroge in the report.

The rising inflation suggests a rising cost of living, coinciding with the June Ipsos survey where 28 percent cited that cost of living is the biggest problem facing this country now. Half of Kenyans reported worsened household economic conditions in the survey.

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Fredrick Ombako

Fredrick Ombako is a research consultant at ResearchPro Solutions and Director at Bukas Accountancy & Consulting Limited. He consults mostly for NGOs and county governments by conducting research studies, Monitoring & Evaluation, and Project Management. You may reach him on 0721977108


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BANKING · BUSINESS · KENYA