PRESS RELEASE
MONETARY POLICY COMMITTEE MEETING
The Monetary Policy Committee (MPC) met on March 29, 2023,
against a backdrop of continued global uncertainties, a weak
global growth outlook, easing inflationary pressures,
geopolitical tensions, 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 increased to 9.2 percent in February 2023
from 9.0 percent in January, mainly driven by higher food
prices. Food inflation rose to 13.3 percent in February
from 12.8 percent in January, mainly due to increases in the
prices of vegetables, attributed to hot and dry weather
conditions witnessed in the period. Additionally, fuel
inflation remained elevated at 13.8 percent in February, largely
reflecting the scaling down of the fuel subsidy and increases in
electricity prices due to higher tariffs. Overall
inflation is expected to remain elevated in the near term,
partly reflecting further increases in electricity prices.
Nonetheless, the long rains will moderate food inflation in
the coming months.
• Uncertainties in the global economic outlook have increased,
reflecting concerns about financial sector stability in the
advanced economies, continuing geopolitical tensions
particularly the ongoing war in Ukraine, and the pace of
monetary policy tightening in the advanced economies.
Nevertheless, commodity prices in the global markets,
particularly of oil and food, have been easing.
• Leading indicators point to a strong performance of the Kenyan
economy in the first quarter of 2023, reflecting robust activity
in the services sector particularly wholesale
and retail trade, accommodation and food services, education,
and information and communication. The economy is expected to
remain resilient in 2023 despite the global uncertainties,
supported by continued strong performance of the services sector
and expected recovery in agriculture.
• Two of the surveys conducted ahead of the MPC meeting—the CEOs
Survey and Market Perceptions Survey—revealed tempered optimism
about business activity and economic growth prospects for the
next 12 months. Respondents expressed concerns
over elevated domestic inflation, the weakening of the Kenya
shilling, and high food prices due to prolonged dry weather
conditions. Nonetheless, some respondents remained optimistic
due to firm- and sector-specific growth opportunities, the onset
of the long rains which was expected to boost agricultural
activity and lower food prices in the near term, government
measures to strengthen agricultural production, support for
businesses through the Hustler Fund, and the resilience of the
private sector.
• The Survey of the Agriculture Sector conducted in the first
half of the month, revealed
that prices of some vegetables were expected to increase in the
next one month. Additionally, respondents expected the supply of
most non-vegetable food items to
either increase or remain unchanged on account of the
anticipated long rains season. Nevertheless, respondents
identified high input costs, unpredictable weather conditions,
as well as transport costs as the major factors constraining
agricultural production.
• Goods exports have remained strong, growing by 11.0 percent in
the 12 months to February 2023 compared to a similar period in
2022. Receipts from tea and manufactured goods exports increased
by 13.4 percent and 27.2 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 2.1 percent
in the 12 months to February 2023 compared to 27.3 percent in a
similar period in 2022, with lower imports of infrastructure
related equipment due to completed projects. Oil
prices have continued to moderate from the fourth quarter of
2022. Receipts from services exports increased reflecting
sustained improvement in international travel and
transport. Remittances totalled USD4,026 million in the 12
months to February 2023, and were 4.9 percent higher compared to
a similar period in 2022. The current account deficit is
projected at 5.4 percent of GDP in 2023 from the estimate of 4.9
percent of GDP in 2022.
• The CBK foreign exchange reserves, which currently stand at
USD 6,493 million (3.62 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
14.0 percent in February 2023, compared to 13.3 percent in
December 2022. Increases in NPLs were noted in the trade,
personal and household, manufacturing and building
and construction sectors. Banks have continued to make adequate
provisions for the NPLs.
• Growth in private sector credit stood at 11.7 percent in
February 2023 compared to 12.7 percent in December 2022. Strong
credit growth was observed in the following sectors:
manufacturing (15.2 percent), transport and communication (16.5
percent), trade (11.8 percent), and consumer durables (12.4
percent). The number of loan applications and
approvals declined, reflecting reduced demand.
• The Committee noted the ongoing implementation of the
FY2022/23 Government Budget, particularly the performance in tax
revenue collection and the approved FY2022/23 Supplementary
Budget, which continues to reinforce fiscal consolidation.
The MPC noted the sustained inflationary pressures, the
elevated global risks and their potential impact on the
domestic economy, and concluded that there was scope for a
further tightening of the monetary policy in order to anchor
inflation expectations. In view of these developments, the MPC
decided to raise the Central Bank Rate (CBR) from 8.75 percent
to 9.50 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 May 2023, but
remains ready to re-convene earlier if necessary.
Dr. Patrick Njoroge
CHAIRMAN, MONETARY POLICY COMMITTEE
(Editing by George Obulutsa)
NAIROBI, March 29 (Reuters) - Kenya's central bank
raised its benchmark lending rate KECBIR=ECI to 9.50% on
Wednesday from 8.75% previously, saying there was room for
further tightening of monetary policy. Below is the full Monetary Policy Committee statement on the
decision:
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