A Look At The Central Bank’s MPC 2018 Report


On the 22nd of Jan 2018, The Central Bank of Kenya held its first Monetary Policy Committee Meeting in 2018. The meeting which was spearheaded by the Governor Dr Patrick Njoroge, gave deep and meaningful insights on the Kenyan economic outlook this year.

The MPC noted out that the economic growth averaged 4.7 percent the first three quarters of 2017 compared to 5.7 percent in a similar period in 2016. The services sector remained the main source of growth, particularly the Micro, Small and Medium Enterprises (MSME’s). The committee expects the economy to pick up in the year 2018 supported by a stable macroeconomic environment, a resurgent private sector, recovery in agriculture, and sustained public investments in infrastructure.

It is worth noting that 2017 was a maiden political year. From the ravaging pangs of the political campaigns to the annulment of the presidential elections and finally the occurrence of a repeat election. It seemed like all these would never end. Business were hit hard. The Nairobi Securities Exchange plummeted a whooping Kshs. 50 billion at the bourse. Experts noted that the economy would face a major trouble recovering from the tumultuous year.

However, the Monetary Policy Committee Perception Survey, conducted in January 2018, showed an upsurge in optimism by the private sector for the economic prospects in 2018. More than 90% of the respondents were optimistic about the prospects for 2018. These respondents attributed their optimism to a stable macroeconomic environment, improved business environment and investor confidence, continued public investment in infrastructure and expected commencement of direct flights to the US. You can read the outline of the MPC Press Release here.

During the Governor’s Press Conference, one of the deepest concerns in the briefing was the interest rate cap. The CBK Governor Dr Njoroge noted that “the interest rate caps have been acting as a break to the economy…The economy is being held back by this. This is something that we need to bring to the fore and deal with so as to support rather than inhibit economic dynamism.” The Banking (Amendment) Act, 2016, which came into force on September 14 last year, caps loan charges at four percentage points above the Central Bank Rate (CBR), presently standing at 10 percent, and requires lenders to pay interest of at least 70 percent of the CBR on term deposits. He made it clear that the stand taken by the CBK is fixed and there is the need for a supportive fiscal policy. One that works with stakeholders to bring everyone on board, strengthens the banking sector and improves the business and investor confidence in the country.

Another issue was the presence of the high public debt threatening to go off the roof and how to sustain it. “At this point, we don’t see our debt level to be unsustainable,” the Governor said. The borrowing was mainly intended for infrastructure projects. He, however, noted that alternative ways of financing these infrastructure projects should be crafted. Citing an example of the Mombasa-Nairobi Expressway, the toll road will be developed in stages; whereby the revenues collected from one stage will be used to finance the next stage and so on. These financial strategies should be well crafted to suit the projects from a perspective of a cost-benefit analysis.

The MPC continues to monitor the impact of the interest rate caps on the effective transmission of monetary policy. The CBK will continue to closely monitor developments in the global and domestic economy and stands ready to take additional measures as necessary


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