The Central Bank of Kenya (CBK) on Monday maintained the country's benchmark lending rate at 10 percent to help check surging inflation which has resulted in high food prices.
Overall inflation is expected to remain above the government target range in the near term due to elevated prices for some food items. Nevertheless, the apex bank's top monetary policy organ said the prevailing policy stance had reduced the threat of demand driven inflation.
"The Committee will continue to closely monitor developments in the domestic and global economies, and stands ready to take additional measures as necessary," CBK governor Patrick Njoroge, who chaired the Monetary Policy Committee (MPC), said in a statement.
The MPC met on Monday to review the outcome of its policy decisions and recent economic developments against a backdrop of improved weather conditions, expectations of lower food prices, and general macroeconomic stability. Month-on-month overall inflation rose to 11.5 percent in April from 10.3 percent in March 2017, due to increases in food prices, notably sifted maize flour, sugar, kales (sukuma wiki) and tomatoes.
Njoroge said recent rains and interventions by the government are expected to provide some relief.
Non-food-non-fuel (NFNF) inflation remained stable below 5 percent, suggesting that demand pressures and pass-through effects of high food prices are muted. He said the foreign exchange market has remained stable, supported by a narrower current account deficit.
"Receipts from tea and horticulture are resilient despite lower export volumes due to adverse weather conditions in the first quarter of 2017," the CBK governor said, adding that receipts from tourism, coffee exports, and diaspora remittances have remained strong.
The CBK's foreign exchange reserves remain at high levels. "These reserves, together with the Precautionary Arrangements with the International Monetary Fund (IMF), equivalent to 1.5 billion dollars, continue to provide a buffer against short-term shocks," Njoroge said.
The MPC said the predictability in government domestic borrowing has continued to support a stable yield curve, and the domestic target for fiscal year 2016/2017 remains achievable.
"The banking sector remains resilient. The average commercial banks' liquidity and capital adequacy ratios stood at 44.4 percent and 18.8 percent, respectively in April," Njoroge said.
The average liquidity ratio rose in April partly due to increased deposits. The ratio of gross non-performing loans to gross loans decreased marginally to 9.6 percent in April from 9.7 percent in February.
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