KBA:Maintain Benchmark Policy Rate at 8.75pc

The Kenya Bankers Association (KBA) Centre for Research on Financial Markets and Policy has urged the Central Bank of Kenya(CBK) to maintain the benchmark policy rate at 8.75 per cent ahead of the Monetary Policy Committee(MPC) meeting scheduled for tomorrow, citing rising global risks and increasing pressure on inflation and the exchange rate.

In its latest Research Note, the Centre says inflation remains within the official target range but faces external risks. Rising global oil prices and ongoing geopolitical conflicts are disrupting trade routes and supply chains, which could push prices higher.

Headline inflation edged up to 4.4 per cent in March, mainly driven by higher food and transport costs, while core inflation remained subdued.

The Centre observes that Kenya’s economic recovery remains steady, but momentum is slowing as private sector activity slightly declines,while ongoing uncertainty related to conflicts in the Gulf and Ukraine continues to impact trade, investor confidence, and overall economic performance.

“Recent cuts in the Central Bank Rate have helped ease short-term interest rates and support lending. However, structural challenges in the financial system mean these benefits are taking time to fully reach businesses and households,” the Note states.

The notes that private-sector credit growth has improved but remains sluggish, with banks still cautious due to heightened lending risks and high levels of non-performing loans, which are leading to tighter credit conditions and constraining faster lending growth.

The Note also highlights pressure on the Kenyan shilling, caused by a widening trade deficit and possible disruptions to diaspora remittances, especially from the Middle East, as imports continue to grow faster than exports.

This increases demand for foreign currency and puts additional pressure on the exchange rate.