Kenya’s MPC Lowers Interest Rates to 12% Amid Inflation Decline

The Monetary Policy Committee (MPC) of Kenya convened on October 8, 2024, to assess the effects of its recent measures aimed at stabilizing inflation and the exchange rate. The meeting occurred against the backdrop of an improving global economy, driven by robust growth in countries like the United States and India, alongside continued geopolitical tensions. Despite these challenges, global inflation has moderated, and key economies have reduced interest rates.

In Kenya, inflation declined to 3.6% in September 2024, down from 4.4% in August, supported by lower food and fuel prices. Food inflation, in particular, dropped due to reduced vegetable prices, while fuel inflation decreased as a result of lower electricity and pump prices. The Central Bank of Kenya (CBK) expects inflation to remain low in the coming months, benefiting from stable supply, a steady exchange rate, and lower fuel costs.

The second quarter of 2024 saw a slowdown in Kenya’s economic growth, with real GDP expanding by 4.6%, a dip from 5.6% in the same quarter of 2023. The MPC revised its 2024 growth forecast to 5.1%, attributing the slowdown to deceleration in various economic sectors. Nonetheless, key service sectors, agriculture, and exports continue to drive growth, though risks remain due to geopolitical tensions.

Kenya’s current account deficit was estimated at 3.8% of GDP in August 2024, slightly higher than the previous year’s figure. Goods exports grew by 8.8% during this period, with significant increases in tea, fruit, and vegetable exports. Imports also rose, mainly due to demand for machinery and equipment. Meanwhile, remittances increased by 12.7%, and tourism saw a notable rise of 21%.

The banking sector remained resilient, despite an uptick in non-performing loans (NPLs), particularly in sectors like transport, trade, and real estate. Lending to the private sector also slowed, reflecting the impact of recent monetary policy tightening.

In response to the slowing economy and easing inflation, the MPC decided to lower the Central Bank Rate (CBR) to 12%, aiming to stimulate economic activity while maintaining exchange rate stability. The committee will continue monitoring economic conditions and stands ready to adjust its policies as needed. The next MPC meeting is scheduled for December 2024.