Kenya's central bank cut its Central Bank Rate (CBR) by 100 basis points to 10.50 percent, saying inflation is expected to decline and remain within the target range in the short term, which means "there was policy space for an easing of monetary policy while continuing to anchor inflation expectations."
The Central Bank of Kenya (CBK), which raised its policy rate by 300 basis points in 2015 in response to a fall in the shilling's exchange rate and a rise in inflation, added that inflation data showed there were "no significant demand pressures in the economy" and the foreign exchange market had remained stable, supported by a narrower current account deficit.
Earlier this month Patrick Njoroge was quoted as saying the central bank had room to start easing its policy as inflation was falling back within the target range of 2.5 percent to 7.5 percent.
Kenya's consumer price inflation rate eased to 5.27 percent in April from 6.45 percent in March, with the 3-month annualized non-food-nonfuel inflation rate down to 4.6 percent in April from 6.8 percent in March.
Since November last year, the shilling's exchange rate has remained relatively stable, with the central bank attributing this to a narrowing of the current account deficit on improved earnings from tea and horticulture exports, strong diaspora remittances and a lower bill for oil imports.
The shilling was quoted at 100.9 to the U.S. dollar today, up 1.4 percent since the start of the year.
Kenya's current account deficit was estimated at 6.8 percent of Gross Domestic Product in 2015, down 3 percentage points from 2014, and is expected to narrow further this year, the CBK said.
Foreign exchange reserves at the central bank amounted to US$7.688 billion, up from $7.377 billion at the end of March.
In March the International Monetary Fund approved a $1.5 billion precautionary arrangement and the CBK said this arrangement, together with its reserves, "will continue to provide adequate buffers against short-term shocks."
