The Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) on Wednesday kept the benchmark rate unchanged at 7% in its sixth consecutive sitting amid concerns of slight rise in the cost of basic food items and services in coming months as a result of tax measures introduced on 1st January 2021.
While signaling rebound in economic growth this year after a 0.6% contraction last year due to COVID-19, MPC says the rate retention stems from policy measures implemented since March last year which it says were having desired effects on the economy.
Central Bank of Kenya Monetary Policy Committee
“The MPC concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 percent,” said MPC Chairman and CBK Governor Dr. Patrick Njoroge.
The committee signaled a mild rise in inflation following the introduction of Digital Service Tax at the rate of 1.5% of gross transaction value and Minimum Tax at the rate of 1% on gross turnover on 1st January 2021 which has already seen a rise in goods and services as tax breaks on VAT and Income Tax also ended.
“The inflation rate is expected to remain within the target range in the near term, supported by lower food prices and muted demand pressures. The recently introduced tax measures are expected to have a modest impact on overall inflation,” said Dr. Njoroge.
Treasury had backed the tax measures introduced at the beginning of the year to shore up lost revenue at the height strict coronavirus measures which forced the government to unveil a Kshs. 50 billion stimulus package to cushion the public social and economic effects of the health pandemic.
As at the end of last year, banks had restructured loans amounting to Kshs. 1.63 trillion or 54.2% of the total loan book which stood at Kshs. 3 trillion, MPC stated.
Also Read: IMF Set to Revises Kenya’s Growth Forecast Upwards
However, the committee also noted a rise in non-performing loans (NPLS) which rose from 13.6% in October to 14.1% as at the end of December.
“Growth in private sector credit stood at 8.4 percent in the 12 months to December 2020, as demand recovered with the improved economic activity. Strong credit growth was observed in the following sectors: manufacturing 12%, transport and communications 13.6%, agriculture 15.3%, real estate 8.7% and consumer durables 18.1 percent%.” Dr Njoroge noted.
CBK forecasts a rebound in growth in 2021 especially with the roll out of COVID-19 vaccine in key export markets in Asia, Europe and the USA which are expected to enhance demand with availability of cargo space.
Exports rebounded to grow 3.3% last year compared to 2019 lifted by tea, horticulture which grew 10.1% and 27.7% respectively even as imports fell 12.5% on account of lower oil products imports and prices.
