Goldman Sachs lauds Kenya amid banking reforms

Goldman Sachs Group Inc. has lauded the recent modifications made by the Central Bank of Kenya to its monetary policy framework, deeming them as “credit-positive” measures. These adjustments are anticipated to promote foreign investment inflows and foster greater flexibility in exchange rates, according to a note authored by Goldman economists Bojosi Morule and Andrew Matheny.

The economists expressed their anticipation that the implemented policies would contribute to the sustained enhancement of Kenya’s external balances over the long term. They also highlighted the potential for an immediate strengthening of Kenya’s external buffer due to improved external liquidity.

The Central Bank of Kenya recently maintained its interest rates at 10.5% during its latest announcement. Alongside this decision, the central bank revealed the adoption of reforms recommended by the International Monetary Fund (IMF). These reforms involve a revised policy framework centred around inflation targeting. The primary objective of this framework is to expedite the transmission of monetary policy actions into tangible impacts on the real economy. A notable feature of the new framework is the introduction of an interest-rate corridor spanning plus or minus 250 basis points around the central bank’s benchmark rate.

Goldman Sachs views these changes in policy as credit-positive and potentially conducive to attracting foreign capital into investments in local-currency debt. The analysts further indicated their intention to introduce a policy rate projection for Kenya in the forthcoming weeks, underlining their commitment to evaluating and forecasting the implications of these policy shifts.

The authors attributed the policy adjustments and the perceived more stringent policy stance to the leadership of Governor Kamau Thugge, who assumed the role at the Central Bank of Kenya in June. The new policy measures, under his guidance, are positioned to shape Kenya’s economic landscape and strengthen its position in the global financial arena.