In brief
- The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) is scheduled to meet on 05 February 2025, and we see scope for a 75bps rate cut. The MPC delivered a cumulative 175bps rate cuts in the second half of 2024 to an effective 11.25% Central Bank Rate, but the long transmission lag means that the easing effects are yet to filter fully to the economy.
- Headline inflation inched higher by 30bps m/m to 3.3% y/y in January 2025, largely driven by elevated food inflation. Given that the monetary policy rate is a blunt instrument on the non-core segment, the policymakers are likely to look beyond the noise of the non-core with focus on the signal from the core segment.
- The policy meeting will offer the first assessment of ex-post 3Q2024 GDP growth data that delivered a negative surprise of 120bps against CBK’s expectation of 5.2%. Underpinning the sluggish growth has been anemic credit mediation and the fiscal outturn which amplifies the demand-side economic strains.
- The authorities settled USD 455.0mn external debt payment to China which has resulted in a dip in stock of FX Reserves before rebounding and closing January at USD 8.9bn. Unsurprisingly, the Kenya Shilling remains generally stable, sustaining the good run from last year and capping the risk of imported inflation.
- The fiscal authorities will likely increase the FY25 domestic borrowing target due to the anticipated downward revenue adjustments. Going by the current domestic borrowing target of KES 413.0bn, the authorities are ahead of their domestic financing requirements. This appears to be the proximate cause of the authorities’ announced domestic bond buyback which was published on Monday 03 February 2025.
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