Kenya’s Monetary Policy Committee (MPC) met on August 6, 2024, revealing positive economic indicators and strategic measures to maintain growth and stability. The MPC’s decision to lower the Central Bank Rate (CBR) to 12.75 percent reflects an improved global economic outlook and declining inflation rates.
The global economy shows signs of recovery, driven by robust growth in the United States and emerging markets like China and India. However, geopolitical tensions and high-interest rates in advanced economies remain significant risks. Despite these challenges, global inflation has moderated, with central banks in some major economies reducing interest rates.
In Kenya, the inflation rate dropped to 4.3 percent in July 2024 from 4.6 percent in June. This decrease is attributed to stable food prices and reduced fuel costs. The stable exchange rate and expected harvests are anticipated to keep inflation below the mid-point of the target range in the near term.
Kenya’s GDP grew by 5.0 percent in the first quarter of 2024, demonstrating economic resilience. Agriculture benefited from favorable weather, and the services sector saw strong performance. However, the industrial sector, particularly manufacturing and construction, experienced slower growth. The economy is projected to grow by 5.4 percent in 2024, slightly down from 5.6 percent in 2023.
Surveys among agricultural sector respondents, CEOs, and market participants indicate optimism about the economy’s future. Improved food supply and a stable exchange rate are expected to keep inflation stable or declining. However, concerns about recent protests, high business costs, and potential geopolitical tensions persist.
Kenya’s current account deficit has narrowed to 3.7 percent of GDP, with increased exports and tourism arrivals contributing to economic stability. Remittances also saw a substantial increase, further bolstering the economy. The Central Bank of Kenya’s foreign exchange reserves, at USD 7.3 billion, provide a buffer against short-term economic shocks.
The banking sector remains strong, with solid liquidity and capital adequacy ratios. Despite a slight increase in non-performing loans, banks continue to make adequate provisions. Commercial bank lending to the private sector grew by 4.0 percent in June 2024, with local currency loans showing robust growth.
The MPC’s decision to lower the CBR is aimed at maintaining economic growth and stability. The committee will monitor the impact of these measures and stands ready to take further action if necessary. The next MPC meeting is scheduled for October 2024.
This comprehensive approach underscores Kenya’s commitment to economic resilience and stability, ensuring sustainable growth amid global and domestic challenges.
