Kenya's central bank left its Central Bank Rate (CBR) unchanged at 11.50 percent to anchor inflation expectations further and enhance the credibility of its policy stance.
The Central Bank of Kenya (CBK), which raised its rate by 300 basis points in 2015 in response to a plunge in the shilling's exchange rate, added the global economic outlook had weakened since its previous meeting in January but the impact of volatility in financial markets and heightened uncertainty in emerging markets and advanced economies "is expected to be minimal due to the diversification of its export products and markets, and stable financial linkages."
Since September last year, the shilling's exchange rate has been relatively stable, with the central bank attributing this to a narrowing of the current account deficit on improved exports, strong diaspora remittances and a lower bill for oil imports.
The shilling was trading at 3.85 to the U.S. dollar today, little changed from 3.82 at the start of this year, but down 17 percent since the end of 2014.
The CBK's foreign exchange reserves rose to US$7.379.3 billion, or 4.7 months of imports, up from $7.023.7 billion at the Jan. 20 meeting of the bank's monetary policy committee.
On March 14, the new 2-year International Monetary Fund precautionary arrangement of $1.5 billion was approved, providing additional buffers against short-term shocks and reflecting confidence in Kenya's macroeconomic policies, the bank said.
Kenya's inflation rate eased to 6.84 percent in February from January's 7.78 percent, within the government's target range of 2.5 to 7.5 percent around a midpoint target of 5.0 percent.
Inflation is forecast to average 6.7 percent this year and 6.1 percent in 2017, underpinning expectations by economists that the CBK will cut rates in the second half of this year.
The CBK said the government's revised budget estimates, currently before the National Assembly, should continue to ease pressure on domestic borrowing and interest rates. Last month the country's Treasury revised down its borrowing requirement by 53.3 billion shillings to 168 billion.
