Kenya & Uganda set to hold MPC meetings amidst global uncertainties

Kenya and Uganda are gearing up to hold their first Monetary Policy Committee meetings for 2025. These meetings come at a time when global uncertainties, particularly in the U.S. economy, are causing significant shifts that are impacting emerging economies. Phillip Ssali, Head of Corporate Sales & Global Markets at Standard Bank Group, provided insights on these developments and other market trends in East Africa. Starting with Kenya, the expectations for today's MPC meeting point towards a 50 to 75 basis point cut from the current 11.25 percent interest rate. This is primarily driven by well-controlled inflation rates below the 5 percent target, stable currency trading within a comfortable range, and sluggish private sector credit growth. A rate cut is seen as a move to stimulate credit growth and bolster economic expansion. On the other hand, Uganda is anticipated to maintain its central bank rate at 9.75 percent. With inflation under control at 3.3 percent in January and a stable currency, the country's economic outlook appears optimistic for the upcoming fiscal year. However, global policy shifts could pose inflation risks, prompting the central bank to hold the rate steady. The potential for further rate cuts in Kenya has been a topic of discussion, especially as President Uhuru Kenyatta advocates for lower rates. If the Central Bank of Kenya announces a cut, it would signal commercial banks to reduce lending rates, fostering a conducive environment for economic growth through affordable credit availability. Amidst these regional developments, the global issue of the U.S. foreign aid freeze looms large, impacting frontier economies. The 90-day freeze signals a potential policy reversal, which could have significant repercussions for sub-Saharan Africa, including a substantial reduction in funding for vital sectors like healthcare, education, and humanitarian aid. This scenario necessitates African countries to enhance self-reliance through increased domestic resource mobilization or higher debt burdens to fill the gap left by donor funds. Inflation trends in both countries also play a crucial role in economic decision-making. While Kenya is experiencing a downward trajectory with a 2% decrease, Uganda witnessed a slight rise to 3.6 percent in January, driven by core inflation. Despite short-term fluctuations, the medium-term outlook suggests that both countries aim to maintain inflation below the Central Bank's target range of 5 percent. In conclusion, the upcoming MPC meetings in Kenya and Uganda reflect the ongoing efforts to navigate through global uncertainties and sustain economic stability amidst challenging times. As East Africa continues to adapt to evolving market dynamics, policymakers and industry players face the task of balancing domestic priorities with external influences to ensure sustainable growth and financial resilience.