The Central Bank of Kenya’s (CBK’s) Monetary Policy Committee (MPC) has cut its base rate to 12.75 percent in August, cutting the cost of taking credit from financial institutions.
The latest move comes following the drop in inflation to 4.3 percent in the month of July and stabilisation of the shilling that traded at Sh130 as of Tuesday August 6.
In a meeting held today, the committee noted that the previous rate of 13 percent helped cool inflation and strengthen the Kenyan shilling against major global currencies, such as the US dollar.
The decision follows rate hikes in December and February that were aimed at stabilising the exchange rate and for three months the rate remained flat helping stubborn inflation to start falling.
Since CBK increased its lending rate, inflation has dropped significantly, with the latest figure from the Kenya National Bureau of Statistics showing that the country’s inflation rate dropped to 4.3 percent in July from a high of 8.1 percent in October last year.
Likewise, the Kenya shilling has gained value against its American unit to about Sh129 per one greenback from a low of Sh160 versus one dollar.
“The MPC noted that its previous measures have lowered overall inflation to below the mid-point of the target range, stabilized the exchange rate, and anchored inflationary expectations,” CBK’s MPC committee agreed.
“The Committee further noted that NFNF inflation has moderated, while central banks in some major economies have lowered interest rates in response to easing inflationary pressures, with indicationsthat other central banks will soon embark on a similar trajectory.”
The MPC added that it still has room to adjust the base rate whilst ensuring continued stability of the exchange rate.