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Goldman Sachs Group heralded changes by the Central Bank of Kenya to its monetary policy framework as “credit-positive” steps that should encourage foreign investment and greater exchange-rate flexibility.
“We expect these policies to support the long-term strengthening of Kenya’s external balances, while improved external liquidity will likely strengthen Kenya’s near-term external buffer,” Goldman economists Bojosi Morule and Andrew Matheny wrote in a note to clients.
The central bank kept interest rates unchanged at 10.5% on Wednesday and announced it was adopting reforms to its policy framework previously recommended by the International Monetary Fund.
The new framework, based on inflation targeting and designed to improve the speed with which monetary policy actions have an impact on the real economy, introduces an interest-rate corridor of plus-or-minus 250 basis points around the central bank’s benchmark rate.
“We view these developments as credit-positive and possibly also conducive to attracting foreign capital inflows into local-currency debt,” the authors said, adding that they will be introducing a policy rate forecast for Kenya in coming weeks.
They tied the policy shift, as well as what they viewed as the more hawkish policy approach, to the new leadership of Central Bank of Kenya under Governor Kamau Thugge, who took office in June.
