The Central Bank of Kenya (CBK) has for the third time retained monetary policy rate at 11.5 per cent to keep inflation in check at a time of relative exchange rate stability.
The Monetary Policy Committee (MPC) – the independent rate – setting organ affiliated to the CBK said overall inflation was trending towards the five per cent target.
The MPC said the Kshs.655 billion ($6.2 billion) worth of forex reserves and the Kshs.65 billion ($610.7 million) precautionary facility from the International Monetary Fund (IMF) were adequate cushions against volatility in the value of the shilling.

The Central Bank Rate (CBR), the policy benchmark, has been retained since early July.  It was first raised in May to 10 per cent, after remaining at 8.5 per cent since April, 2013.
In a statement, the Monetary Policy Committee (MPC) Chairman, Dr. Patrick Njoroge said, “The Committee observed that the measures taken in the previous meetings had continued to bring inflation nearer to the 5 per cent target…. The committee therefore decided to retain the CBR at 11.50 per cent to anchor inflation expectations”.
Dr. Njoroge, who is also the CBK governor, said the MPC was still alive to the fact that “the persistent turbulence in the global financial markets remain a risk to the inflation outlook, and its impact on the exchange rate should be monitored”.  The MPC concluded that supporting measures remain appropriate.  “The CBK stands ready to use the instruments at its disposal to maintain overall price stability”, said Dr. Njoroge.
Among other tools, the CBK uses liquidity – controlling, repurchasing agreements, forex sales and purchases and term auction deposits in its daily operations.  It also uses moral suasion with the market participants to keep domestic prices – including the exchange rate and interest rates stable.
The MPC noted that month-on-month non-food-non-fuel inflation, also called core inflation, reversed its upward trend since April, falling 4.5 per cent in August from 4.7 per cent in July.  “The decrease in inflation was due to lower food prices and moderating demand pressures, particularly offsetting the pass through effects of exchange rate movements”, said Dr. Njoroge.
The governor said the exchange rate had been volatile in August and early September largely due to international developments, particularly the impact of the devaluation of the Chinese Yuan and strengthening of the US dollar.
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