The Central Bank of Kenya (CBK) has held its interest rate at 13%, signalling it is moving closer to cutting borrowing costs as inflation eases and the Kenyan shilling strengthens against major global currencies.

On Wednesday, the apex bank noted that the headline inflation eased to 5.7%, the lowest in two years, as the costs of most food items including maize flour, wheat flour, kales, spinach, and cabbages dropped.

The CBK’s Monetary Policy Committee (MPC) exercised cautious optimism despite the shilling rallying against the dollar and inflation easing within the regulator’s 2.5% to 7.5% range.

“The MPC noted that its previous measures have lowered inflation, addressed the exchange rate pressures, and anchored inflationary expectations. Therefore, the MPC concluded that the current monetary stance will ensure that overall inflation continues to decline towards the 5.0 per cent midpoint of the target, and thus decided to retain the Central Bank Rate (CBR) at 13 per cent,” CBK said in a statement on Wednesday.

The Kenyan shilling has rallied 18%, addressing inflation caused by imports. The central bank on Wednesday quoted the shilling against the dollar at KES 131.48 from a record high of KES 160.18 in February–representing a 17.9% appreciation in the past month.

The CBK said that leading economic indicators point to “continued strong performance of the Kenyan economy in the first quarter of 2024,” buoyed by agriculture, the service sector, and ICT.

The March 2024 Agriculture Sector Survey conducted ahead of the MPC meeting indicates that food prices will fall in the next three months supported by favourable weather conditions, stronger shilling, and dropping fuel prices.