The Central Bank of Kenya (CBK) has retained the Bank Rate at 8.5%, citing foreign exchange build-up to 4.28 months of import cover and adequate reserves from the recently issued Eurobond.
“This build-up of the foreign exchange reserves will continue as the government utilises the proceeds of the Sovereign Bond,” said Prof. Njuguna Ndungu, the CBK Governor, after the Monetary Policy Committee meeting Tuesday.
The Central Bank announced the introduction of the benchmark Kenya Banks Reference Rate (KBRR), the new credit pricing formula for all private loans and mortgages.
It consequently set the KBRR at 9.13% until January 2015, when it would meet to review it.
Kenya completed the issuance of a US$1.5 billion Eurobond recently, aiming to raise foreign capital from the international debt markets as a measure of effective economic management.
But the opposition has accused the government of unnecessary international borrowing which is leading to high national indebtedness.
The CBK Monetary Policy Committee said the decision to maintain the CBR at 8.5% was reached after close analysis of the inflationary trend and was backed by the currency stability.
The Eurobond proceeds have been used to pay US$600 million syndicated loan and the CBK said the Nairobi Secuties Exchange (NSE) continues to receive foreign investors.
The annual inflation currently stands at 4.47% from 4.35% in June. The CBK said with its usable reserves currently at US$6.5 billion in July from US$6.3 billion in June, it had adequate reserves to fight domestic price instability.
“The latest stress tests and data shows the Banking Sector remains solvent and resilient,” the Governor said.
The credit to the private sector increased to 24.99% in May from 23.87% in April.
The CBK Governor said its decision was also bosted by better rating of the Kenyan economy by Moody at B1 after the issuance of the Bond.
The ratings boost the ability of Kenya Commercial Banks to borrow cheaply from the international markets and lend locally at affordable rates.