Central Bank of Kenya
Chart 4: Kenya Shilling vs Major Currencies
160
Exchange rate
140 120 100 80 60 40 20 0 Jan. Jul. Sept. Nov. Dec. Jan. Mar. Jun. Aug. Oct. Dec2005 2005 2005 2005 2005 2006 2006 2006 2006 2006 06 Period Year 2005/2006
US Dollar Sterling Pound Euro
3.6
There was sustained stability in inflation, exchange and interest rates during the year
Interest rates
Short term interest rates dropped from 8.07 per cent in 2005 to 5.7 per cent in December 2006. In line with the monetary policy operations, the Bank reviewed the Central Bank Rate (CBR) from 9.5 per cent in August 2006 to 10 per cent in December 2006. CBR, which is the rate of interest Central Bank lends to commercial banks was launded on 31st May 2006. The revision signalled monetary tightening by Central Bank. Short term interest rates, however, declined in December 2006. The average 91-day Treasury bill rate declined from 8.07 per cent to 5.7 per cent in December 2006. The average interbank rate similarly declined from 7.79 per cent in December 2005 to 6.34 per cent in December 2006. On the other hand, lending rates increased from 13.2 per cent in 2005 to 13.7 per cent in 2006, while the average deposit rate declined from 4.5 in December 2005 to 4.1 per cent in December 2006. As a result, the spread between lending and deposit rates increased from 8.7per cent in December 2005 to 9.6 per cent in 2006 thereby leading to increased profitability in the banking sector. As interest rates are determined by the market, continued implementation of prudent monetary policy this is thus expected to foster interest rate stability.
20
Bank Supervision Annual Report 2006