Written by David Indeje
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The Monetary Policy meeting on Thursday maintained its current tight monetary policy stance for the fifth month since December, by retaining the Central Bank Rate at 18.0 per cent “…to ensure that inflation continues to decline towards the target and to sustain the current exchange rate stability.”
Further, a statement from Prof Njunguna Ndungu the MPC chair’s statement read, “The Committee therefore decided to retain the Central Bank Rate (CBR) at 18.0 percent. In addition, in order to ease the pressure on interest rates, the CBK will enhance its monetary policy operations to stabilize the daily interbank rate.”
The committee further it cited that the policy stance it had taken supported with some of its policies had continued to deliver the “desired outcomes of a gradual decline in inflation and inflationary expectations, as well as exchange rate stability.”
“Exchange rate stability has been maintained with the average exchange rate fluctuating between a narrow range of Ksh.83.07 and Ksh.83.37 against the US Dollar in April 2012. “
It also noted that apart from the funds disbursed to the country by the International Monetary Fund under the Extended Credit Facility Programme in April of approximately USD111 million to cushion the external shocks, which increased the foreign exchange reserves to USD4,629 million, money remitted by the Kenyans from the Diaspora justified the “Confidence in the economy”.
“Diaspora remittances that increased from USD89.76 million in January 2012 to USD103.98 million in February 2012 and further to USD106.40 million in April 2012,” read part of the statement.
However, it noted that:"Balance of payments pressures and their potential impact on the exchange rate are major risks. In addition, the continued turbulence in the global financial markets due to the debt crisis in the Euro zone presents a potential risk to the exchange rate and hence to inflation," the bank said in a statement.
"These considerations showed that there is still some lingering pressure on inflation that could give rise to adverse inflationary expectations. These must be addressed to facilitate a return to high economic activity supported by a low inflation regime," it said.
On the other hand, the latest data from the Kenya National Bureau of Statistics (KNBS) indicated that inflation dropped to 13.06 per cent in April, down from 15.6 per cent in March, marking the largest margin of decline in two years.
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