Will MPC raise benchmark rates?

MA's take: NO CHANGE

A lot of economists agree that the Monetary Policy Committee will hold on to the current benchmark rates and that any subsequent revisions will be done from February and especially so in March.

While the economy seems to have riled  under the current CBR/KBBR, the two main reasons as to why the tight monetary policy was introduced are yet to be fully resolved.

While Shilling volatility has been tamed--with a lot of input from other intervention mechanisms, a lot less of success can be said of reigning in on inflation. In a previous post recently i stated that KE's tight monetary  policy is a curious one as inflation has continued to defy it.

So, until inflation is brought under control--it is currently above the govt target of 7 percent--i see no changes on CBR/KBBR.

For more details on why MPC adopted the tight monetary policy, please read the links below:

People with loans from banks are likely to pay more in the coming months for this service. This is after the Central Bank of Kenya (CBK) raised the rates at which it lends to other commercial banks from 10.00 per cent to 11.50 per cent. While the new measures are likely to deal with rising inflationary pressure in the economy, it will be a wait and see situation, to see whether the local foreign exchange market, which has been responding to a strong US dollar on the global market, remains calm. The Monetary Policy Committee (MPC), a key policy organ of the Central Bank of Kenya (CBK), yesterday raised the Central Bank Rate (CBR) from 10.00 per cent to 11.50 per cent. This is the second increment in a space of two months after the MPC raised the bench mark rate, the price at which CBK lends to other commercial banks, from 8.5 to 10.0 per cent in June, 2015. “The outlook for the global economy remains uncertain. In particular, the recent developments in Greece, possible turbulence in the global markets, and the uncertainty around the timing of increase in US interest rates are cause for concern,” Monetary Policy Committee Chairman and Governor of Central Bank of Kenya Patrick Njoroge said. In view of the new CBR, the CBK has revised the Kenya Bankers Reference Rate(KBRR) consistent with its commitment in January 2015 from 8.54 per cent to 9.87 per cent. This level of the KBRR will be effective from July 7, 2015. KBBR is computed as an average of the CBR and the two-month weighted moving average of the 91-day Treasury bill rate. A customer should therefore expect to be charged a lending rate of KBRR plus charges that may relate to the individual customer’s risk profile, the type of loan or the risks associated with the investment. The Monetary Policy Committee noted that while the Kenya Shilling has remained under pressure, it mainly reflects the strengthening of the US dollar against most currencies. In addition, the current account deficit widened in part due to increased imports of capital equipment and weak exports. Foreign exchange “However, diaspora remittances remain resilient. Interventions by CBK through direct sale of foreign exchange to commercial banks in periods of short-term exchange rate have dampened volatility. The CBK’s level of usable foreign reserves remains adequate at $630.9 million (equivalent to 4.2 months of import cover). The precautionary facility with the International Monetary Fund provides an additional cushion,” said Dr Njoroge. The Committee also noted elevated risks to the inflation outlook mainly attributed to pressures on the exchange rate over the last few months. Razia Khan, the regional Head of Economics, Africa at Standard Chartered Bank expects CBK’s move to benefit the Kenyan shilling in the near term.
Read more at: http://www.standardmedia.co.ke/business/article/2000168380/borrowers-headed-for-tough-times-as-cbk-raises-benchmark-rate

http://www.standardmedia.co.ke/business/article/2000175591/kenyans-brace-for-tougher-times-as-shilling-touches-sh106-against-dollar

http://www.theeastafrican.co.ke/business/Treasury-CBK-pass-the-buck-over-missed-cost-of-living-target--/-/2560/3027300/-/bxdb3gz/-/index.html

People with loans from banks are likely to pay more in the coming months for this service. This is after the Central Bank of Kenya (CBK) raised the rates at which it lends to other commercial banks from 10.00 per cent to 11.50 per cent. While the new measures are likely to deal with rising inflationary pressure in the economy, it will be a wait and see situation, to see whether the local foreign exchange market, which has been responding to a strong US dollar on the global market, remains calm. The Monetary Policy Committee (MPC), a key policy organ of the Central Bank of Kenya (CBK), yesterday raised the Central Bank Rate (CBR) from 10.00 per cent to 11.50 per cent. This is the second increment in a space of two months after the MPC raised the bench mark rate, the price at which CBK lends to other commercial banks, from 8.5 to 10.0 per cent in June, 2015. “The outlook for the global economy remains uncertain. In particular, the recent developments in Greece, possible turbulence in the global markets, and the uncertainty around the timing of increase in US interest rates are cause for concern,” Monetary Policy Committee Chairman and Governor of Central Bank of Kenya Patrick Njoroge said. In view of the new CBR, the CBK has revised the Kenya Bankers Reference Rate(KBRR) consistent with its commitment in January 2015 from 8.54 per cent to 9.87 per cent. This level of the KBRR will be effective from July 7, 2015. KBBR is computed as an average of the CBR and the two-month weighted moving average of the 91-day Treasury bill rate. A customer should therefore expect to be charged a lending rate of KBRR plus charges that may relate to the individual customer’s risk profile, the type of loan or the risks associated with the investment. The Monetary Policy Committee noted that while the Kenya Shilling has remained under pressure, it mainly reflects the strengthening of the US dollar against most currencies. In addition, the current account deficit widened in part due to increased imports of capital equipment and weak exports. Foreign exchange “However, diaspora remittances remain resilient. Interventions by CBK through direct sale of foreign exchange to commercial banks in periods of short-term exchange rate have dampened volatility. The CBK’s level of usable foreign reserves remains adequate at $630.9 million (equivalent to 4.2 months of import cover). The precautionary facility with the International Monetary Fund provides an additional cushion,” said Dr Njoroge. The Committee also noted elevated risks to the inflation outlook mainly attributed to pressures on the exchange rate over the last few months. Razia Khan, the regional Head of Economics, Africa at Standard Chartered Bank expects CBK’s move to benefit the Kenyan shilling in the near term
Read more at: http://www.standardmedia.co.ke/business/article/2000168380/borrowers-headed-for-tough-times-as-cbk-raises-benchmark-rate