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Central Bank of Kenya holds benchmark lending rate

07 May 2015, 08:40

Nairobi -  Central Bank of Kenya held its benchmark lending rate at 8.50 percent on Wednesday, saying it would pursue a tightening bias to contain inflation through money market operations.

The bank's Monetary Policy Committee (MPC) said in a statement that developments in the foreign exchange markets had triggered inflationary expectations and said this threatened the bank's price stability objective.

A spike in food prices due to dry weather pushed inflation to 7.08 percent last month, its highest level since August.

April's inflation figure was above consensus expectation in a Reuters poll of analysts and was close to the upper limit of the government's target band of 2.5-7.5 percent.

The shilling has weakened by 5.26 percent to the dollar this year on the back of rising imports, a slump in tourism and general demand for dollars from importers and firms paying annual dividends to shareholders abroad.

The central bank said it would use open market operations to neutralise the emerging threats to price stability.

"The MPC will therefore pursue the current tightening bias stance in the money market through the CBK (Central Bank of Kenya) monetary policy operations in order to anchor inflationary expectations," the MPC said.

The bank has frequently mopped up shilling liquidity from the market, using repurchase agreements (repo) and term auction deposits, another financial instrument.

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- Reuters


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