Kenya’s central bank said on Monday its Monetary Policy Committee will hold an interest rate meeting on October 8.
We estimate that the Central Bank of Kenya (CBK) will reduce the policy rate by 100 basis points (bps) to 11.75% by the end of 2024, after reducing the policy rate by 25 basis points to 12.75% at its meeting on August 6.
Low inflation, financial comfort in emerging economies, and rising risks to economic growth will encourage policymakers to continue monetary expansion in the next three months. We estimate the policy rate to be 8.00% by the end of 2025.
The Monetary Policy Committee (PPC) report stated that “previous measures have reduced inflation below the brand target average, stable exchange rate and stable financial expectations” with the decision, while also warning about many issues. The central bank might reduce the interest rates in response to the slowdown in the economy, and there are signs that other central banks will soon follow suit. Percentage expectations might be adjusted slightly.
Political risks have risen in Kenya this year, with civil unrest continuing after President William Ruto’s failed bid to pass a 2024 budget bill that would have raised taxes.
President William Ruto’s coalition government formation has not curbed the opposition’s power. As a result, Kenya’s PMI fell from 51.8 in May to below 50, indicating a contraction in the economy, falling to 47.2 in June and 50 in July. This is likely to continue to inform policymakers and lead to continued fiscal stimulus to support lending. In fact, private lending has declined in recent months due to the previous crisis
