GOUP 5 MEMBERS

1. Sophie Thiong'o → BE 107/G/8805/20

2. David Ndungu -> BE107/G/10425/20
3. Maxwell Tigani -> BE 107/G/10654 100.
4. Jacob Mwangi →BE 107 G/ 8829/20.
5. Joel Mwangi -> BE 107/G/ 10066/20.
6. Nyamai Joseph -> BE 107/G/ 6679 /19.
7. Cynthia Wangeci-> BE107 /G/ 10459/20

Monetary Policy Objectives

MONETARY POLICY FOMULATION
Attainment of monetary policy and objectives
1. Inflation control Targeting: The report indicates that the MPC's primary goal was to
achieve and maintain overall inflation within the target range provided by the Cabinet
Secretary for the National Treasury. This objective aligns with the broader aim of
ensuring price stability, a key goal of monetary policy. The target inflation rate of 5
percent with a margin of 2.5 percent on either side indicates a commitment to keeping
inflation in check, which is crucial for stable economic growth.
2. Monetary Policy Tools and Operations: The report highlights the utilization of various
instruments such as Open Market Operations (OMO), adjustments in cash reserve
requirements, and the use of the Central Bank Rate (CBR). These tools are commonly
used by central banks to influence the money supply in the economy, thereby affecting
interest rates and ultimately controlling inflation. The use of the CBR reflects the central
bank's efforts to signal its monetary policy stance to the market.
3. Money Supply and Credit Growth: The report mentions that the annual growth in the
broad money (M3) and private sector credit remained within their projected growth paths.
The increase in M3 was attributed to the improved private sector credit uptake during the
period. Controlling the growth of money supply and credit is essential for maintaining
price stability, as excessive growth can lead to inflationary pressures.
Monetary Policy Committee Meetings and Decisions
The report highlights the key deliberations and decisions of the Monetary Policy Committee
(MPC) over a six-month period from May to October 2020. During this period, the global
economy was grappling with the profound challenges posed by the COVID-19 pandemic.
Considering the outlined events, the MPC's decisions appear to align with the objectives of
monetary policy, which typically aim to maintain price stability and promote economic growth.
1. Price Stability and Inflation Control: The MPC consistently noted that inflation
remained well anchored within the target range. This stability was supported by various
factors such as improved food supply, lower international oil prices, the reduction of VAT,
and muted demand pressures. With inflation under control, the MPC's decision to
 maintain the Central Bank Rate (CBR) at 7.00 percent was in line with its objective to
ensure price stability.
2. Economic Growth and Recovery: Despite the severe disruptions caused by the
pandemic, the MPC acknowledged some positive signs of recovery in certain sectors,
such as the resilient growth in private sector credit, the rebound in horticultural exports
following the lifting of restrictions, and the recovery in exports, particularly in the tea and
horticulture sectors. The MPC's accommodative monetary policy stance aimed to support
economic recovery and growth, as evidenced by the decision to retain the CBR at 7.00
percent.
3. Financial Sector Stability: Throughout the period under review, the MPC consistently
emphasized the stability and resilience of the banking sector, indicating improved credit
to the private sector and the overall stability of the sector. This was an essential factor for
maintaining overall financial stability, which is crucial for sustainable economic growth.
4. Fiscal Coordination: The MPC emphasized the importance of fiscal measures in
supporting the economy during the crisis. It highlighted the implementation of measures
in the FY2020/21 Budget that would augment the accommodative monetary policy
stance. This coordination between monetary and fiscal policies is essential to ensure the
effectiveness of policy measures in addressing economic challenges.
5. Foreign Exchange Reserves: The Central Bank of Kenya (CBK) maintained foreign
exchange reserves at USD 8,363.0 million in October 2020, providing adequate cover
and acting as a buffer against short-term shocks in the foreign exchange market. This
suggests a monetary objective of maintaining sufficient reserves to support the stability of
the currency.

IMPACT OF POLICY RESPONSES TO COVID-19 (CORONAVIRUS) PANDEMIC

The report emphasizes the key monetary policy measures implemented by the central
bank to support the economy in the wake of the COVID-19 pandemic. The measures
have been geared towards mitigating the adverse impacts of the pandemic on businesses,
households, and various sectors of the economy. In line with the objectives of monetary
policy, the central bank has aimed to ensure adequate liquidity in the financial system,
facilitate credit access, and promote financial stability. the objectives of monetary policy
are:
1. Liquidity Provision and Credit Access: The reduction of the Cash Reserve Ratio (CRR)
and the extension of the tenor of Reverse Repurchase Agreements (REPOs) resulted in
increased liquidity in the banking system, enabling commercial banks to offer more
affordable credit to businesses, especially in sectors such as tourism, trade, transport,
communication, real estate, manufacturing, and agriculture. This action has supported the
objective of enhancing credit availability and promoting economic activities.
 2. Support for Borrowers and Financial Relief: The restructuring of a significant portion
of the banking sector's loan book provided relief to borrowers, especially those in the
personal, household, trade, manufacturing, real estate, and agriculture sectors. These
measures were instrumental in alleviating financial stress and promoting financial
stability during a time of economic turmoil, in line with the objective of maintaining a
stable financial system.
3. Encouragement of Digital Transactions: By collaborating with commercial banks and
payment service providers to waive charges on low-value mobile transactions, the central
bank promoted the use of cashless payments and encouraged the adoption of digital
platforms. This move not only helped contain the spread of the virus through the use of
cash but also contributed to the increase in the volume and value of mobile money
transactions, thereby fostering financial inclusion and efficiency.
4. Supporting External Trade: The government's strategic measures to sustain exports,
particularly in the horticulture sector, by allowing cargo flights and converting passenger
planes into cargo planes, helped maintain the continuity of international trade. This action
supported the objective of stabilizing the external sector and ensuring the smooth flow of
essential supplies, including medical goods.
5. Interest Rate Management: The decline in the interest rates reflected improved liquidity
in the government securities market following the lowering of the CBR, and is also an
outcome of effective coordination of monetary and fiscal policies, particularly in the
implementation of the government domestic borrowing programme
OTHER ACTIVITIES OF THE MONETARY POLICY COMMITTEE
1. Market Information Gathering: The MPC's Market Perceptions Surveys and regular
communication with key stakeholders, including private sector firms, provide crucial
insights into the state of various sectors of the economy. By expanding the coverage of
the surveys to the environs around its currency center in Kisii, the MPC demonstrates its
commitment to collecting comprehensive and diverse data to inform its policy decisions
effectively.
2. Support for Pandemic-Affected Sectors: The introduction of specialized surveys for
the hotels and flower farms sectors indicates the MPC's efforts to assess the impact of
COVID-19 and monitor the recovery progress in these sectors. By closely monitoring
these sectors, which employ a significant portion of the Kenyan workforce, the MPC
aims to understand the specific challenges faced by these industries and tailor appropriate
policy responses accordingly.
3. Stakeholder Engagement and Transparency: The MPC's efforts to engage with
stakeholders, such as chief executives of commercial and microfinance banks, through
virtual meetings, help in fostering transparency and ensuring that the MPC's decisions are
well understood by the financial sector. The virtual press conferences held by the MPC
Chairman serve to enhance public awareness and understanding of the background and
rationale behind the MPC's decisions. Similarly, the virtual meetings with potential
 investors help in communicating the economic outlook and encouraging investment in
the country.
4. Policy Implementation Monitoring: The MPC's continued monitoring of the
implementation of monetary policy decisions by the Central Bank of Kenya (CBK) and
its interaction with other government agencies, such as the National Treasury and the
Kenya National Bureau of Statistics (KNBS), reflect its commitment to ensuring effective
policy implementation and coordination between monetary and fiscal authorities. This
coordination is vital for achieving the overall macroeconomic objectives of the country.
Conclusion
The report highlights the effectiveness of the Monetary Policy Committee's (MPC) measures in
achieving the objectives of monetary policy, particularly in maintaining price stability and
supporting households and businesses amid the challenges posed by the COVID-19 pandemic.
The report also emphasizes the importance of the coordination between fiscal and monetary
policies in achieving overall economic stability.
FOREIGN EXCHANGE MARKET DEVELOPMENT

1. Exchange Rate Stability: The foreign exchange market remained relatively stable during the period
under review. This suggests that one of the monetary objectives was to maintain stability in the
exchange rate.

2. Current Account Deficit Reduction: The narrowing of the current account deficit to 4.8 percent of GDP
indicates an objective to reduce the deficit. A lower deficit can contribute to a more stable currency and
improved economic fundamentals.

3. Adequate Foreign Exchange Reserves: The Central Bank of Kenya (CBK) maintained foreign exchange
reserves at USD 8,363.0 million in October 2020, providing adequate cover and acting as a buffer against
short-term shocks in the foreign exchange market. This suggests a monetary objective of maintaining
sufficient reserves to support the stability of the currency.

4. Resilience of the External Sector: The relative stability of the Kenya Shilling was supported by the
resilience of Kenya's external sector, including resilient exports, strong diaspora remittances, and a lower
import bill. This indicates a monetary objective of promoting a healthy external sector to support the
stability of the currency.

BALANCE OF PAYMENT DEVELOPMENT

1. Current Account Balance Improvement: The current account deficit improved moderately, indicating
progress in achieving the objective of narrowing the deficit. This improvement was primarily driven by a
slowdown in goods imports and an increase in goods exports. The decline in the import bill, influenced
by lower international oil prices and reduced global demand, contributed to the improvement in the
current account balance.
2. Financial Account and Capital Account: The lower net inflows in the financial account and the decline
in capital account inflows suggest that the objective of managing external financing and investment
flows may have been achieved. The decrease in foreign direct investment liabilities, slowdown in other
investment inflows, and reduced external borrowing by the government and private sector indicate a
more controlled approach to external financial transactions.

3. Merchandise Export Growth: The increase in the value of merchandise exports, particularly in tea and
other exports, reflects progress in the objective of promoting export growth. Despite declines in
horticulture, coffee, and manufactured goods exports, the overall positive growth in merchandise
exports indicates efforts to diversify and expand the country's export base.

4. Impact of COVID-19: The decline in services exports, especially in transportation and travel services,
due to COVID-19 containment measures highlights the challenges posed by the pandemic. However, the
monitoring of global developments by the Central Bank of Kenya (CBK) suggests an awareness of the
external factors influencing trade and investment, including the effects of the pandemic, post-Brexit
resolution, and U.S. economic and trade policies.