Business

CBK retains base lending rate at 13.0%, says inflation is stable

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The bank hiked rates in December and February to stabilise the exchange rate and help bring stubborn inflation under control.

Kenya's central bank held its benchmark lending rate at 13.0 per cent on Wednesday, saying that inflation was stable within its near-term target range, and it aimed to keep the exchange rate stable.

It is the second time running the bank has held its rate, after leaving it unchanged in April. The bank hiked rates in December and February to stabilise the exchange rate and help bring stubborn inflation under control.

"The Monetary Policy Committee (MPC) concluded that the current monetary policy stance will ensure that overall inflation remains stable around the mid-point of the target range in the near term, while ensuring continued stability in the exchange rate," the central bank said in a statement.

In August, the bank introduced a new interest rate corridor to help guide short-term market interest rates towards the central bank policy rate. It had set the rate at plus or minus 250 basis points around the policy rate.

On Wednesday, the bank said it had also adjusted the discount window rate to 300 basis points above the central bank rate from 400 basis points previously. The discount window rate is what it charges commercial banks who borrow from the regulator as a last resort.

The Kenyan shilling has stabilised against the dollar after the government successfully raised $1.5 billion from international markets in February to partially buy back another bond that is maturing in June.

Inflation, which had remained on the higher side of the government's preferred band of 2.5-7.5 per cent for months, rose slightly to 5.1 per cent in May from 5.0 per cent a month earlier.

Official statistics show Kenya's economy grew 5.6 per cent in 2023 from 4.9 per cent the previous year.

The central bank said it expects robust economic performance in 2024, despite the effects of widespread flooding earlier in the year.

"The economy is expected to remain strong in 2024, supported by the resilient services sector, robust performance of the agriculture sector, and continued implementation of government measures to boost economic activity across priority sectors," it said.

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