Kenya's central bank left its benchmark Central Bank Rate (CBR) at 8.50 percent, as expected, and said inflation is forecast to continue moving towards the bank's 5.0 percent target, and maintaining the policy rate would continue to anchor inflation expectations.
The Central Bank of Kenya (CBK), which has maintained its rate since May 2013, said there had been no fundamental change in the factors that have been driving inflation in the last 12 months despite notable sporadic spikes in July and August that were expected.
Kenya's headline inflation rate eased to 6.43 percent in October from 6.6 percent in September and 8.36 percent in August, and is expected to continue its decline, the CBK said. The gauge for non-food-non-fuel inflation (NFNF), which measures the impact of the monetary policy stance, eased to 3.47 percent in October from 3.66 percent, indicating no incipient inflationary pressures.
On Oct. 1 the CBK's governor said in an interview that inflation would probably hover around 5-7 percent over the next three months.
The central bank's level of usable foreign exchange reserves rose to $7.116 billion at the end of October, the equivalent of 4.64 months of imports) from $6.377 billion at the start of September, with the rise attributed to proceeds from the government's sovereign bond.
"This level of foreign exchange reserves is considered adequate to cushion the foreign exchange market against short-term shocks," the CBK said, adding that the exchange rate of the shilling had remained stable despite short-term pressures that had resulted in a "flight to safety" and a strengthening of the U.S. dollar.
Kenya's shilling has been depreciating against the U.S. dollar since early 2012 and was trading at around 89.6 to the dollar today, down 3.6 percent this year.
The central bank said confidence in Kenya's economy remains strong, with activity at the Nairobi stock exchange buoyant and diaspora remittances rose to an all-time high, averaging $128.1 million in the months of August and September compared with $107.0 million in the same two 2013 months.
The central bank's market perception survey in October also showed the private sector expecting inflation and the exchange rate to remain stable for the rest of this year, growth will be resilient and optimism for an improved business environment for the rest of this year is high.