The Central Bank has maintained the policy rate, the rate at which it lends to commercial bank, at 13.5% again.
It explained in its Monetary Policy Committee report which was released today that “considering the fairly balanced risks to inflation and growth in the outlook of the economy, the Committee decided to keep the policy rate at 13.5%”.
According to the report, two readings since the last MPC meeting showed significant increase in headline inflation from 7.8 percent in June 2021, to 9.0 percent in July, and further up to 9.7 percent in August, closer to the upper limit of the medium-term target band.
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The upward trajectory of inflation was mainly driven by a surge in food prices over the period. Food inflation increased from 7.3 percent in June to 9.5 percent in July, and then to 10.6 percent in August 2021. Non-food inflation also rose marginally from 8.2 percent, 8.6 percent, and then 8.7 percent over the same comparative months.
The above trends are beginning to reflect in underlying inflation as all the Bank’s core measures of inflation increased over the period. The core inflation measure, which excludes energy and utility, increased from 7.5 percent in June 2021 to 8.9 percent in July, and then to 9.5 percent in August. The weighted inflation expectations index also picked up in July 2021, reflecting higher inflation expectations by businesses, consumers and the financial sector.
The Committee noted that the recovery in global economic activity has continued, although unevenly spread across regions and countries.
But, uncertainties regarding the continued spread of the Delta variant of the COVID-19 virus, variations in policy stimulus programmes, and low access to vaccines in emerging market and frontier economies may weaken near-term growth prospects. Global inflationary pressures are expected to be strong in the nearterm. However, the factors driving headline inflation are judged to be temporary,” it added.
The report further stated that the still sizeable spare capacity in the global economy and the slackness in labour market conditions would restrain wage growth and prevent a significant and sustained pick-up in underlying inflation. Inflation is expected to return to their target over the medium-term as the spare capacity is eroded.
Global financing conditions remain generally supportive of the recovery process, despite rising inflationary pressures
