Kenya's central bank left its Central Bank Rate (CBR) steady at 11.50 percent, saying the current pressures on inflation were only temporary and its policy stance was enough to contain any upward pressure on prices from demand.
The Central Bank of Kenya (CBK), which raised its rate by 300 basis points in 2015, added that it was retaining its rate to help anchor inflation expectations. The central bank also left the Kenya Banks' Reference Rate (KBRR) at 9.87 percent.
Kenya's inflation rate accelerated to 8.0 percent in December from 7.3 percent in November, above the upper bound of the 7.5 percent target. The government targets inflation of 5.0 percent, plus/minus 2.5 percentage points.
However, the central bank said higher prices of several food items, contributed 2.3 percentage points to overall inflation and new taxes on alcohol and tobacco on Dec.1 had contributed 0.3 percentage points to inflation.
Non-food-non-fuel inflation (NFNF) inflation had only risen to 5.6 percent in December from 4.8 percent, with no signs of adverse demand pressure in the economy, the CBK said.
After falling sharply from March through September, Kenya's shilling has been stable since November, with the central bank attributing this to a narrower current account deficit from a lower import bill for petroleum products, a recovery in tourism, tea and horticulture exports and remittances from workers abroad.
Today the shilling was trading at 102.4 to the U.S. dollar, practically unchanged from 102.3 at the start of this year but down 11.5 percent since the beginning of 2015.
Kenya's Gross Domestic Product expanded by an annual 5.8 percent in the third quarter, up from 5.5 percent in the second quarter, and the central bank said its January market perception survey showed increased optimism.
In November Kenya's finance minister cut his 2015 growth forecast to 5.8-6.0 percent from 6.0 percent due to the potential impact of El Nino on harvests and tight monetary policy.
