Kenya's central bank maintained its Central Bank Rate (CBR) at 8.50 percent due to a lack of "fundamental structural" pressure on inflation but said it would "pursue a tightening bias in the money market through the CBK monetary policy operations in order to continue to anchor inflationary expectations."
The Central Bank of Kenya (CBK), which has held its rate steady since May 2013, added that the impact of base effect on inflation will dissipate from September and along with its current policy measures, its effective liquidity management operations will "moderate any pressures that might give rise to adverse inflation expectations."
Kenya's overall inflation rate rose to 8.36 percent in August from 7.67 percent in July and 7.39 percent in June while non-food-non-fuel inflation in August rose to 4.92 percent from 4.45 percent.
In the first eight months of the year, overall inflation averaged 7.18 percent. As CBK targets inflation at a midpoint of 5.0 percent, plus/minus 2.50 percent, inflation was above its upper target bound in both July and August.
Due to the rise in inflation, economists believe CBK could raise its rate in coming months.
The exchange rate of Kenya's shilling has been depreciating since October last year and was trading at 88.80 to the U.S. dollar today, down 2.6 percent since the beginning of the year.
But the CBK said the exchange rate was supported by resilient foreign exchange inflows from diaspora remittances and sustained foreign investor participation in the Nairobi stock exchanges, while central bank sales to commercial banks seas supporting a stable exchange rate.
Usable foreign exchange reserves fell to US$ 6.376.95 billion as of Sept. 3 from 6.501 billion on July 7, but still enough for 4.21 months of import cover.
"The level of foreign exchange reserves is adequate to cushion the foreign exchange market against any temporary shocks," the CBK said.
Kenya's banking sector remains resilient, the CBK said, with annual growth in private sector credit of 25.54 percent in July compared with 25.79 percent in June, with credit channeled mainly to productive sectors of the economy.
Internationally, the central bank said growth in its main trading partners is projected to pick up in the second half of this year, but "the geopolitical situation in the Middle East and North African region as well as in Ukraine remains a risk to the stability of international oil prices and the overall price stability objective."