Eyes turn to the shilling as MPC meets next week

Business Daily (Kenya) - - FRONT PAGE - Charles Mwaniki [email protected]­tion­media.com

The re­cent weak­en­ing of the shilling is ex­pected to be the main fo­cus of the Mone­tary Pol­icy Com­mit­tee (MPC) next week, given that in la­tion has re­mained con­tained within the pre­ferred range in spite of tax rise.

The re­cent weak­en­ing of the shilling is ex­pected to be the main fo­cus of the Mone­tary Pol­icy Com­mit­tee (MPC) next week, given that in­fla­tion has re­mained con­tained within the pre­ferred range in spite of tax rise.

The cen­tral bank’s MPC meets Tues­day, also against the back­drop of con­tin­ued slow growth of pri­vate sec­tor credit and a rel­a­tively sta­ble macroe­co­nomic en­vi­ron­ment where growth has im­proved com­pared to last year.

An­a­lysts at Com­mer­cial Bank of Africa and King­dom Se­cu­ri­ties there­fore ex­pect the MPC will leave the base rate un­changed at nine per cent, largely to wait and see the de­vel­op­ments in in­fla­tion and the ex­change rate.

Since the last meet­ing on Septem­ber 25, the shilling’s ex­change rate against the dol­lar has moved from 100.85 units to 102.35, hav­ing touched a low of 103.20 along the way on

Shilling ex­change rate against the dol­lar

Novem­ber 16.

“The cur­rency will re­main a fo­cal point for the MPC at the next meet­ing given its im­pact on in­fla­tion and in­fla­tion ex­pec­ta­tions,” said the CBA anal­y­sis.

“The re­sponse from MPC is likely to be cau­tion­ary, per­haps a lit­tle more hawk­ish. Given that un­der­ly­ing in­fla­tion fun­da­men­tals re­main some­what sta­ble with the lethargy in the credit mar­ket likely to per­sist, the reg­u­la­tor is this month likely to re­main neu­tral on its pol­icy stance but in­di­cate its will­ing­ness to act should risks to in­fla­tion es­pe­cially from the cur­rency de­pre­ci­a­tion re­main.”

King­dom an­a­lysts say that while they ex­pect there will be some up­ward in­fla­tion­ary pres­sure aris­ing out of the tax on pe­tro­leum prod­ucts, it would re­main within the pre­ferred tar­get range of 2.5 to 7.5 per cent.

In­fla­tion in Oc­to­ber fell to 5.53 per cent from 5.7 per cent of Septem­ber.

“On the back of the sta­bil­ity present in the macro-eco­nomic en­vi­ron­ment, we por­tend the MPC to leave the CBR un­changed at nine per cent dur­ing the next meet­ing,” said King­dom Se­cu­ri­ties.

FILE

The Cen­tral Bank of Kenya’s MPC will meet ontues­day.

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