NAIROBI, Jan 30 (Reuters) - Kenya's central bank on
Monday held its benchmark lending rate at 8.75%, its monetary
policy committee said. Below is the full Monetary Policy Committee statement on the
decision:
MONETARY POLICY COMMITTEE MEETING
The Monetary Policy Committee (MPC) met on January 30, 2023,
against a backdrop of a weak global growth outlook, decline in
global commodity prices, easing inflationary pressures,
geopolitical tensions, persistent uncertainties, and measures
taken by authorities around the world in response to these
developments. The MPC reviewed the outcomes of its previous
decisions and measures implemented to mitigate the adverse
economic impact and financial disruptions.
• Overall inflation decreased to 9.1 percent in December 2022
from 9.5 percent in November, mainly due to lower food prices.
Food inflation declined to 13.8 percent in December from 15.4
percent in November, largely driven by a decrease in prices of
maize and milk products following improved supply attributed to
the ongoing harvests and impact of the recent short rains,
respectively. Additionally, prices of edible oils and wheat
products declined due to lower global commodity prices with the
easing of international supply chain disruptions. Fuel inflation
declined to 12.7 percent in December 2022 from 13.8 percent in
November, due to lower international oil prices, but remains
elevated on account of the scaling down of the fuel subsidy
and increases in electricity prices due to higher tariffs.
Overall inflation is expected to decline in the near term, also
supported by the recently announced Government measures to allow
duty-free imports of key food items particularly maize, rice and
sugar.
• The outlook for global growth has improved with easing
inflation pressures in major economies particularly in the U.S.,
as well as China’s lifting of COVID-19 restrictions.
Additionally, volatility in global financial markets has
moderated amid expectations of a slower pace of monetary policy
tightening. Nevertheless, risks remain mainly reflecting
geopolitical tensions particularly the ongoing war in Ukraine,
and the pace of the monetary policy response in the
advanced economies.
• The recently released GDP data for the third quarter of 2022
together with leading indicators show that the Kenyan economy
registered strong growth in 2022. Real GDP grew by 4.7 percent
in the third quarter of 2022, mainly driven by robust activity
in wholesale and retail trade, education, electricity and water,
and real estate sectors. Based on available economic indicators,
GDP is estimated to have grown by 5.6 percent in 2022. The
economy is expected to remain resilient in 2023, supported by
continued strong performance of the services sector and expected
recovery in agriculture, despite the global uncertainties.
• Two of the surveys conducted ahead of the MPC meeting—the CEOs
Survey and Market Perceptions Survey—revealed sustained optimism
about business activity and economic growth prospects for the
next 12 months. The optimism was attributed to the continued
resilience of the private sector, and the impact of Government
interventions including in the agriculture and MSMEs sectors,
both of which are expected to support employment and growth.
While respondents remain concerned about domestic inflation,
they expect it to ease in the coming months. Additionally, their
concerns about global recession and inflation have moderated.
• The Survey of the Agriculture Sector revealed that prices of
most food items were expected to decline or remain unchanged in
February 2023. Additionally, respondents expected supply of
food items, mainly maize, rice and wheat to increase in the
coming months on account of ongoing harvests and the expected
duty-free imports. Nevertheless, respondents identified high
input costs and unpredictable weather conditions as the major
factors constraining agricultural production.
• Goods exports have remained strong, growing by 10.9 percent in
2022 compared with 2021. Receipts from tea and manufactured
goods exports increased by 16.1 percent and 22.1 percent
respectively during the period. The increase in receipts from
tea exports reflects improved prices attributed to demand from
traditional markets. Additionally, imports grew by 5.8 percent
in 2022 compared to 25.4 percent in 2021, with lower imports of
infrastructure related equipment due to completed projects. Oil
imports grew by 60.3 percent on account of the elevated
international prices which moderated in the fourth quarter of
2022. Receipts from services exports rebounded significantly
reflecting sustained improvement in international travel and
transport. Remittances totalled USD4,028 million in 2022, and
were 8.3 percent higher compared to 2021. Against these
developments, the current account deficit is now estimated at
4.9 percent of GDP in 2022 and is projected at 5.4 percent of
GDP in 2023.
• The CBK foreign exchange reserves, which currently stand at
USD7,005 million (3.92 months of import cover), continue to
provide adequate cover and a buffer against any short-term
shocks in the foreign exchange market.
• The banking sector remains stable and resilient, with strong
liquidity and capital adequacy ratios.
The ratio of gross non-performing loans (NPLs) to gross loans
stood at 13.3 percent in December 2022, compared to 13.8 percent
in October. Repayments and recoveries were noted in the trade,
tourism, restaurant and hotels, transport and communication and
manufacturing sectors. Banks have continued to make adequate
provisions for the NPLs. The banking sector registered a strong
performance in the year ended December 31, 2022, with the asset
base increasing by 10 percent from Ksh.6 trillion at end of 2021
to Ksh.6.6 trillion. The performance was supported by banks
reviewing their business models leveraging on technology and
innovation, enhanced capital and liquidity buffers and a
continued focus on customer-centricity.
• Growth in private sector credit increased to 12.5 percent in
2022 compared to 8.6 percent in 2021. Strong credit growth was
observed in the following sectors: manufacturing (13.8 percent),
transport and communication (23.5 percent), trade (11.4
percent), business services (13.7 percent), and consumer
durables (12.9 percent). The number of loan applications and
approvals increased, reflecting improved demand with increased
economic activities.
• The Committee noted the ongoing implementation of the
FY2022/23 Government Budget, particularly the recent strong tax
revenue collection reflecting enhanced tax administration
efforts and increased economic activity. The proposed FY2022/23
Supplementary Budget, and rationalization of expenditure which
is expected to support the envisaged fiscal consolidation in
the medium term, were also noted.
The Committee noted that the impact of the further tightening of
monetary policy in November 2022 to anchor inflationary
pressures was still transmitting in the economy. Additionally,
the MPC noted that this action will be complemented by the
recently announced Government measures to allow
limited duty-free imports on specific food items, which are
expected to moderate prices and further
ease domestic inflationary pressures. The MPC concluded that the
current monetary policy stance remains appropriate, and
therefore decided to retain the Central Bank Rate (CBR) at 8.75
percent.
The Committee will closely monitor the impact of the policy
measures, as well as developments in the global and domestic
economy, and stands ready to take additional measures, as
necessary. The Committee will meet again in March 2023, but
remains ready to re-convene earlier if necessary.
Dr. Patrick Njoroge
CHAIRMAN, MONETARY POLICY COMMITTEE
(Editing by George Obulutsa)
george.obulutsa.thomsonreuters.com@reuters.net))
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