The Central Bank of Kenya has decided to maintain its benchmark interest rate at 13%, a level not seen in the last twelve years, as it anticipates a decrease in inflation rates in the coming months. This decision, announced by Governor Kamau Thugge, aligns with the predictions of financial analysts surveyed prior to the announcement.

Inflation and Monetary Policy Strategy:

Governor Thugge emphasized the expectation of diminishing inflation, attributing this trend to the decreasing prices of food and fuel, alongside the positive impacts of recent currency appreciation. “The monetary policy stance adopted is projected to guide inflation towards the central target of 5%,” Thugge noted, highlighting a strategic approach to achieving balanced economic growth.

In March, inflation witnessed a decline to 5.7% from February’s 6.3%, supported by the Kenyan shilling’s impressive performance. Since the Monetary Policy Committee’s last meeting on February 6, the shilling has appreciated approximately 24% against the dollar, marking it as the world’s strongest-performing currency within this period. This rally is attributed to several factors, including strategic financial maneuvers and previous rate adjustments by the committee.

Market Reactions and Economic Indicators:

Post-announcement, Kenya’s 2031 eurobond yields experienced a minor decrease, signaling investor response to the central bank’s decision. The bank’s foreign-exchange reserves, critical for covering imports, remain slightly below the optimal four-month threshold but are expected to benefit from forthcoming financial support from global institutions such as the World Bank and IMF, currently standing at $7.136 billion or 3.77 months of import coverage.

The sector of private-sector credit growth also saw changes, decreasing to 10.3% in February from a higher rate previously. Additionally, the banking sector faced challenges with the ratio of non-performing loans increasing, particularly within the real estate and construction industries.

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