GAZETTE NOTICE NO. 5889

PURSUANT to the provrsions of the Civil Aviation Act (No.21 of 2013) and the Lrcensing of Air Services Regulations, 2009 (Regulation 28), notice is given that the Kenya Civil Aviation Authority has made decisions on applications for air service licences whose particulars were previously published in the Kenya Gazel/e Notices Nos. 6579 of 201 5, I 17 7 and 3 804 of 20 I 6. The decisions are specified in the third column and the particulars ofthe applications are in the second column for each applicant named in the first column of the schedirle bElow. SCHEDULE Name and Address ofApplicant rype of Serv ic e app I rcd for Decisions Cargolux Airlmes Intemational S.A. Luxembourg Airport, L-2990 Luxembourg. rtemational non-scheduled all cargo air services on the route: [i) LU)UJNB/LOS/NBO/AMS/LUX [ii) . LUX/LoS/BZVINBO/AMS/LUX [ni) LUXILoS/ACC/NBO/AMS/LUX [tv) LUX/JNBAIBO/AMS/LUX [v) LUX/PHC/FIH/NBO/STN/LUx [vr) LUX/JNB/NBO/STN/LUX r'ithout traffic rights between Lagos/ Brazzaville/Accra/Johannesburg/ .inshasa and Nairobi using airuafrtypeBT4T based in Luxembourg. Licence granted for two (2) ycar with effect from 2nd July, 20lt without trafEc rights on the routr between Nairobi and Stansted. GASA---Geotech Aviation South Africa (Pty) Ltd. Farm 412, Portion 67, Elandsfontein, Bapsfontein, I5I0 South Africa. Aenal work services withio Kenya using aircraft type AS350B3 based at Kisumu and Wilson airport. Licencegrantodforthree months with effect from l4th July 2016. (3 Astral Aviation Limited P.O. box 594-00606, Nairobi. (D Intemational scheduled all cargo air services as per designation b) . the Ministry ofTransportand Infrastructure. (ii) Non-scheduled all cargo air services within/out oflinto Kenya to/fiom points rn Afiica/Middle East/ Europe. (iii) Non-scheduled air services for passengers within/out oflintt Kenya to/from points in Africa. Using aircraft type;8147,872'1, DCg, FK27, and C208B based at JKIA Moi Intemational Airport, Eldoret and Wilson airport. Licence granted for three (3) year with effect from 6th April, 2016. Air Direct Connect Limrted P.O. Box 19252-00501, Nairobi. (i) Intemational scheduled air services for passengers on the routes: JKIA to/from/Dar-es Salaam/Entebbe/ Kigali/Bujumbura/Juba /Ivlogadishu/ Addis Ababa as per designatidn by the Ministry of Transport and Infiastructure. (ii) International scheduled all cargo air services on the route JKII tolfrom Dar-es- Salaam/Entebbe/Kigali/ Bujumbura/Juba Mogadishu/ Addis Ababa as per designation by the Ministry o Transnort and Infiastructure- Licence not granted. (iii) Non-scheduled air services for passengers and cargo within/ou oflinto Kenya to from Eastem/Central/Southem Africa. (iv) Domestic scheduled air services on the routes: JKIA tolfron Mombasa/ Kisumu/lsioloAMajir using ahcraft type; 8737 C2200. FK27 based at JKIA. Licence granted for one (l) yea with effect from l4th July,2016. Kenya Airways Limited P.O. Box 35395-00200, Nairobi. Internatronal scheduled air servrces for passengers as per designation by the Ministry of Transport and Infrastructure. International scheduled all cargo air services as per designation b1 the Ministrv of Transoort and Infrastructure. (') (ii) Licence granted for three (3) yeal with effect from 22nd March 2016. -r[ 29th July, 2016 THE KENYA GAZETTE ,I I Name and Address ofApplicanl rype of Serv ice app lied for Decisions (iii) Non-scheduled air services for passengers, cargo and matl within/out oflinto Kenya to/from points in Africa and the rest of the world. (iv) Domestic scheduled air services on the routes: (a) JKIA to/fromMombasa/Kisumu/Malindi/Eldoret/ Lamu./Waj irl Ukunda/[Iomabay/Lokichoggio/ Isiolo. (b) Mombasato/from JKIA/Kisumu/Eldoret/Malindi /Lamufukunda. (c) Kisumu tolfrom JKIA/Mombasa./ Eldoret/Homabay (d) Eldorettolfrom JKIA/Mombasa/Kisumu/Homabay Using aircraft type; 8787, 87 7 7, 87 38, 87 37, 87 33, EMB l 90, EMB I T( based at JKIA, Kisumu, Eldoret and Moi Intemational Arport.' Coastal Travel Limited P.O. Box 3052, Dar-es-Salaam. International non-scheduled air services for passengers and cargr between designated entry/exit points in Tanzania and Kenya usinl aircraft type; C208 and C206 based in Dar es Salaam. Licence granted for two (2) year with effect from l6th April,2016. Yellow Wings Air Services Limited P.O. Box 4714-00506, Nairobi. Variation of current air service licence to include aerial work servicer within Africa/Middle East/Asia and the points: within AfncalNliddlt East/Asia as additional geographical area of operations under the non scheduled air services. Variatron of licence granted fo the period of validity of curren licence. SAC (K) Limited P.O. Box 5920M0200, Nairobi. Variation ofcurrent air service licence to include intemational schedule< all cargo air services subject to desigratton by the Ministry of Transpor and Infrastructure and Mombasa and Eldoret airports as additional tases. Deferred. Safarilink Aviation Limited P.O. Box 5616-00506, Nairobi. Variation ofcurrent air service licence to include the route: Garissa/I(akuma/Dadaab on the domestic scheduled air services based a Wilson Airport. Variation of lcence granted fo the period of validity of curren licence. Z. Boskovic Air Charters Limited P.O. Box 45646-00100, Nairobi. (i) Non-scheduled air services for passengers and frerght within ou oflinto Kenya to/from points in Africa and the neighbouring Indiar Ocean Islands. (ii) Aerial work pewices within Kenya/ Africa using aircraft type 8E20, C2088, C206, C3 l0 based at Wilson Airport. Licence granted for tkee (3) yearr with eff'ect from 29th Apil,2016. Kenya Wildlife Service P.O. Box 54582--00200, Nairobi. (i) Non-scheduled air services for passengcrs within Kenya. (ii) Aerial work services within Kenya. Using aircraft BELL407 ,BELL206, C208 and C 182 based at Wilson Airport. Operations limited to Sibiloi, Malka Mari and Marsabit National Park from the base. Licence granted for three (3) year with effect from 26th June,2016. Airworks Kenya Limited P.O. Box 2750H)0506, Nairobi. Non-scheduled air services for passengers and cargo within/out oflinto Kenya to/from points in,Africa and the rest of the world using aircraft C208B, BEl900D,DHC8,EMB145 based atJKIA and Wilson Airport, Licence granted for three (3) year with effect from 6th May, 2016. Fasdet Kenya Limited P.O. Box 1687-{0502, Nairobi. (i) International scheduled air sewices on the route; JKIA to/from DAR/JUB/ EBB/LLIN/LLWA,IPIWJNB/ADD subject to designation by the Ministry of Transport and Infrastructure. Licence not granted (ii) Non- scheduled air services for passengers, freight and mail within/out oflinto Kenya to/from points in Africa/Middle East/Europe. (iii) Domestic scheduled air services on the route; JKIA to/from Eldoret/Kisumu/WaJir/Mombasa. Using aircraft A3 I 9, CRI I 00 and CRJ200 based at JKIA. Licence granted for one (l) yea with effect from 24th September 2016. Proactive Agencies Limited P.O. Box 9135-00300, Nairobi. (i) Non-scheduled air services for passengers and freight within/out of /into Kenya tolfiom Eastem and Central Africa. (ii) Aerial Work Service within Kenya. (iii) Flying instructions within Kenya. Using aircraft C172,C152, Cl50 and BE55 based at Wilson airport. Licence granted for one (l) yea wrth effect fiom 14th July,2016. AirKenya Express Limited P.O. Box 30357-00100, Nairobi. (i) Non-scheduled air services for passengers and freight within/out oflinto Kenya to/from pornts in East Africa and the rest of Africa. (ii) Domestic scheduled air services on the routes: (a) Wilson to/from Masai Mara./ Amboseli/Nanyuki/Lewa/Samburu/Menr/Lamu/}lalind i/Diani. (b) Masai Mara to/from Migoril Seronera/Kogatende/ Lobo/ Grum eti/I\,[anyara./Ndutu/Sasakwa/ Nanyuki. Using aircraft type; DHCS, DHC7, DHC6, C208 and AS350B3 based at Wilson Airport. Licence granted for three (3) yean wrth effect from l lth Apnl, 2016. Name and Address ofApplicant type of Service applied for Decisions Balloon Safaris Limited P.O. Box 43747-00100, Nairobi. Non-scheduled air services for passengers within Masai Mara. Using ancrafttype;24zs,2350,2250 (Hot Air Balloons) based at Masai Mara. Licence granted for three (3) year with effect from 25th August 2016. African Sky Charters Limited P.O. Box408l3-{0100, Nairobi. (i) Non-scheduled air services for passenlers within Kenya and thr neigbouring countries. (ii) Self-fly hire services within Kenya and the neighboring countries. Using aircraft rype; C206 and C I 82 based at Wilson Airport Licence granted for one (l) yea with effect from 14th July,2016. Govemors Aviation Limited P.O, Box 48217-00100, Nairobi. (i) Non-scheduled air servioes for passengers and freight wilhin/out of /into Kenya tolfrom East and Central Africa, (ii) Domestic scheduled air sgrvices on the route: Wilson to/from Naivasha/Masai Mara/I\,lfangano. Using aircraft type; C20E trased at Wilson Airpbrt and Musiara. Licence granted for one (l) yea with effect from l4th July,20l6. Airspray (K) Limited P.O. Box 1596H0509, Nairobi. . \erial work services within Kdnya/East and Central Africa using aircraft ype; Cl88B. Gl648 based at Bissel, Kajiado. Licence granted for one (1) yea with effect from l4th July,2016. Ventura Aviation Limited P.O. Box I158-{0606, Nairobi. 0) Non-scheduled arr services tbr passengers and cargo withrn/out oflinto Kenya to/from points in Africa. (ii) Non-scheduled air services for medical evacuation within/out oflinto Kenya fo/from points in Africa. (iii) Aerial work services within Kenya./East Africa. Using aircraft type; EMBl20, AS350B3, C208B based at Wilson airport, JKIA, Moi Airport, Eldoret Airport. Licence granted for one (1) yea with effect from l4th July,2016. Skywest Aviation Limited P.O. Box 26314-{0100, Nairobi. Non-scheduled air services for passengers withir/out of/into Kenya tolfrom points in Africa and Middle East using aircraft type; FK50, FKl00, CRI100 and DHC8 based at JKIA and Wilson airport. Licence granted for oare (l) yea with effect from l4th July,2016. Globalkek Aviation Limited P.O. Box 14927--00800, Nairobi. Non-scheduled air servlces for passengers and cargo within/out of/into Kenya tolfrom Eastem and Central Africa using aircryft type; FK27, C208B and Cl72 based at JKIA, Wilson and Lokichoggio airport. Licence granted for one (l) yea with effect from l4th July,2016. Turkana Basin Institute Limited P.O Box2446'l-00502 Nairobi. Non-scheduled air services for passengers within/out ofl into Kenya tolfiom East Africa using aircraft type C208B bdsed at Wilson airport. Licence granted for one (l) yea with effect from l4th July,2015. Musimba Investment Limited P.O. Box 5033(H0200, Nairobi. (i) Non-scheduled air services for passengers and cargo within/out oflinto Kenya tolfrom points in Africa. (ii) Flying instructions within Kenya. Using aircraft type; C208, Cl72 and 8407 based at Makindu and Wilson Airport. Licence granted for o4c (l) yea with effect from l4th July,2016. Jambojet Limited P.O. Box 19079-00501, Nairobi. (i) DomeStic scheduled air services on the route: Nairobi tolfrom Mombasa,iEldoret/ Kisumu. Licence granted for one (l) yea with effect from lTth December 2015. (ii) Intemational scheduled air services for passorgers and fieight on the route: Nairobi/Mombasa tolfrom Juba./Entebbe/Dar es Salaam/ Mwanza./ Bujumbura/ Kig allZamibarl Kilimanjaro/Addis Ababa- Using aircraft 8737, DHC8 and ATR T2based at JKIA and Moi Intemational Airport. Licence not granted. Discovery Airways Limited P.O. Box 105562, Nairobi. Non-scheduled air services for passengers and cargo within/out oflinto Kenya tolfrom Points in Africa and Middle East. Using aircraft FK50, DHC8, FKI 00, FK70 8820, BEI 900 and CRI I 00 based at JKIA and Wilson Airport. Licence granted for one (l) yea with effect from l4th July,2016. Ocean Airlines Limited P.O. Box 732740100, Nairobi. (i) Non-scheduled air services for passengers and cargo within/ out of/into Kenya tolfrom points in Africa. iii) Domestic scheduled air services for passengers on the routes JKIA/Wilson to/from Kisumu/Garissa/Wa.1irl Lokichoggio,A4alind illN4oyale,Mandera Using aircraft type EMBI2O based at JKIA and Wilson Airport. Licence granted for one (l) yea with effect from l4th July,2016. l l l i GILBERT M. KIBE, Director-General. Dated the 2lst July,20l6. Y1G1086575116-17 29th July,2016 THE KENYA GAZETTE 2949 l GAZET.IE NoTICE No. 5890 THE CENTRAL BANK OF KENYA (Cap.49t) MoNETARy Polrcy STATEMENT, DECEMBER 2015 (lssued pursuant to Section 48 of the Cennal Bank of Kenya Act, Cap 491) Lettcr of Transmittal to the Cabinet Secrctary for the National Treasury Dear Hon. Cabinet Secretary, I have the pleasure of forwarding to you the 37th Monetary Policy Statement (MPS) of Central Bank of Kenya (CBK), pursuant to Section 48 of the Central Bank of Kenya Act. It reviews t}re outcome of the monetary policy stance during the second half of 2015, describes the current economic environment and outlook, and concludes with an outline of the direction of monetary policy in 2016. Dr. Patrick Njoroge, Govemor Tbe Principal Objectives of the Central Bank of Kenya The principal ofiectives of the Central Bank of (enya (CBK) as established in the CBK Act are: (l) To foimulate and implement monetary policy directed to achieving and maintaining stability in the general level of prices; (2) To foster the liquidity, solvency and proper functioning of a stable, market-based, financial system; (3) Subjectto(l)and(2)above,tosupporttheeconomicpolicyoftheGovernment,includingitsobjectivesforgrowthand employment. Wittiout prejudice to the generality of the above, the Bank shall: ' Formulate and implement foreign exchange policy; ' Hold and manage Govemment foreign exchange rcseryes; ' License and supervise authorised foreign exchange dealers; ' Fonhulate and implement zuch policies as best promete the establishment, regulation and supewision of efticient and effective payment, clearing and settlement systems; ' Act as banker and adviser to, and fiscal agent of the Govemment; and . ' I,ssue currency notes and coins. The CBK formulates and conducts monetary poliry with the aim of keeping 6verall inflation within the allowable margin (cunently 2.5 percent) on either side of the target prescribed by the National Treasury after the annual Budget Policy Statement. The achievement and maintenance of a low and stable inflation rate coupled with ensuring adequate liquidity in the market facilitates higher levels of domestic savings and private investment which leads to improved economic growth, higher real incomes and increased employment opportunities. The Bank's monetary policy is therefore designed to support the Govemment's desired growth in the production of goods and services and employment creation through achieving and maintaining a low and stable rate of inflation. Instruments of Monetary Policy The CBK pursues its monetary policy objectives using the followiltg instruments: ' Open Market Operations (OMO): This refers to actions by the CBK through purchases and saf es of eligible securities to regulate the money supply and the credit conditions in the economy. OMO can also be used to stabilise short-term interest rates. When the Central Bank buys securities on the open market, it increases the reserves of commercial banks, making it possible for them to expand their loans and hence increase the money supply. To achieve the desired level of money supply, OMO is conducted using: i. Repurchase Agreements (Repos): Repos entail the sale of eligible securities by the CBK to reduce commercial banks' deposits held at CBK. Repos (also called Vertical Repos) have fixed tenors of 3 and 7 working days. Reverse Rqros are purchases of secwities from commercial banks and hence, they are an injection of liquidity by the CBK during periods of tighter than desired liquidity in the market. The Late Repo, sold itr the afternoon, has a4-day tenor and is issued at an interest rate 100 basis points below the Repo on that day. When a weekend or public holiday coincide with the maturity date of the Repo, the tenor is extended to the next working day. ii. Term Auction Deposit (TAD): The TAD is used when the securities held by the CBK for Repo purposes are exhausted or when CBK considers it desirable to offer longer tenor options. The CBK seeks to acquire deposits through a transfer agreement from commercial banks at an auction price but with no exchange of security guarantee. Currently, the tenors for such deposits at CBK are 14,21, or 28 day periods, At maturity, the proceeds revert to the respective commercial banks. iii. Horizontal Repos: Although Horizontal Repos are not strictly monetary policy instruments, they are modes of improving liquidity distribution between commercial barks, and are conducted under CBK supervision. They are transacted between commercial banks on the basis of signed agreements using govemment securities as collateral, and have negotiated tenors and yields. Commercial banks, short of deposits at the CBK, borrow from banks with excess deposits on the security of an appropriate asset, normally a govemment security. Horizontal Repos also help banks overcome the problem of limits to lines of credit, thus promoting more efficient management of interbank liquidity. Central Bank Rate (CBR): The CBR is reviewed and announced by the Monetary Policy Committee (MPC) at least every two months. Movements in the CBR, both in direction and magnitude, signal the monetary policy stance. In order to enhance clarity and certainty in monetary policy implementation, the CBR is-the base for all monetary policy operations. Whenever the Cenhal Bank is injecting liquidity through a Reverse Repo, the CBR is the lowest acceptable rate by law. Likewise, whenever the Bank wishes to withdraw liquidity through a Vertical Repo, the CBR is the highest rate that the CBK will pay on any bid receive4. However, to ensure flexibility and effectiveness of monetary policy operations in periods of volatility in the market, the CBK can raise the maximum acceptable interest rates on TAD to above the CBR. Movements in the CBR are hansmitted to changes in short-term interest rates. A reduction of the CBR signals an easing of monetary policy and a desire for market interest rates to move downwards. Lower interest rates encourage economic activity and thus growth. When interest rates decline, the quantity of credit demanded should increase. The efficiency in the Repo and interbank markets is crucial for the hansmission of monetary policy decisions. The CBK monitors, but does not intervene, in the ovemight interbank money market which is conducted by the banking industry. It responds to the tightness or slackness in the interbank market liquidity through OMO. Short-term international flows of capital are affected by shortterm interest rates in the country. These are, in tum, affected by movements in the CBR and hence indirectly, the exchange rate could also be affected. ' Kenya Banks' Reference Rate (KBRR): The KBRR is the base rate for all commercial and microfinance banks' lending. The level of the KBRR is reviewed by the CBK and announced through the Monetary Policy Committee press releases at leasf every six months. ' Standing Facilities: The CBK does not have automatic standing facilities with respect to overnight lending. Thc CBK, as lender of last resort, provides secured loans to commercial banks on an ovemight basis at a penal rate that is over the CBR. This facility is referred to as the Discount Window. Access to the Window is govemed by rules and guidelines which are reviewed from time to time by the CBK. Banks making use of this facility more than twice in a week are scrutinised closely, and supervisory action taken. ' The Cash Reserves Ratio (CRR): Irr accordance with the law, the CRR is the proportion of a commercial bank's total deposit liabilities which must be held as deposits at CBK. These deposits are held in the CRR Account at no interest. The ratio is currently 5.25 percent of the total of a bank's domestic and foreign currency deposit liabilitieg. To facilitate commercial banks' liquidity management, commercial banks are currently required to maintain their CRR based on a daily average level from the I 5th of the previous month to the I 4th of the current month and not to fall below a CRR of 3 percent on any day. ' Foreign Exchange Market Operations: The CBK can also inject or withdraw liquidity from the banking system by engaging in foreign exchange transactions. A sale of foreign exchange to banks withdraws liquidity from the system while . the purchase of foreign exchange injects liquidity into the system. Participation by the CBK in the foreign exchange market is usually motivated by the need to acquire foreign exchange to service official debt, and to build-up its foreign exchange reserves in hne with the statutory requirement. The CBK uses its best endeavours to maintain foreign reserves equivalent to four months' imports as recorded and averaged for the last three preceding years. The CBK does not participate in the foreign exchange market to defend a particular value of the Kenya shilling but may intervene in the exchange market to stabilise it in the event of excess volatility. The following regulatory measures have been introduced, through Prudential Guidelines of banks, to support stability of the exchange rate: i. Limiting the tenor of swaps and Kenya Shilling borrowing where offshore banks are involved to a tenor of not less than one year. ii. Limiting the tenor of swaps between residents to not less than seven days. iii. Reduction of the foreign exchange exposure ratio of core capital from 20 percent to l0 percent. The foreign exchange timits should not exceed the l0 percent overall limit at any time during any day. iv. Requiring that local banks obtain supporting documents for all transactions in the Nosho accounts of offshore banks. Licensing and Supervis'ion of Financial Institutions: The CBK uses the licensing and supervision tools to ensure stability and efficiency of the banking system; this includes ensuring corf,pliance with Prudential Guidelines, and vetting potential managers for suitability both with respect to qualifications and character The National Payments System: The modemisation of the National Payments System has continued to lower transaction costs, and improve the effectiveness of monetary policy instruments. ' Policy coordination in the region: Price and financial stability are also supported by regional policy coordination through the regular meetings of the Govemors of the Central Banks'of the East African Community partner states, consolidated supervision and regulation ofbanks with branches in the region to safeguard the banking system from risks associated with cross border banking activities and country risk, and maintaining efficient regional payments systems to facilitate timely and secure settlement of cross border transactions. ' Cornmunication: The increasing use of communication media ensures a wider dissemination of monetary policy decisions and background data thereby increasing the effrciency of information transmission and managing expectations. The regular interaction between the MPC and the Chief Executive Officers of banks through the Kenya Bankers Association (KBA) has ensured that monetary policy decisions are transmitted to the banking sector. The CBK website is an important source of up-to-date data on all aspects of the financial market including interest rates, exchange rates, results of auctions of govemment securities, and the MPC releases. The CBK also participates in the regional and National Agriculnrral Society of Kenla Shows in order to sensitise the public on its functions. Legal Status of the Monetary Policy Statement l. Section 48 (1) of the CBK Act requires the Bank to submit to the Cabinet Secretary for The National Treasury, at intervals of not more than six months, a Monetary Policy Statement for the next twelve.months which shall: i. Specifo policies and the means !y which the Bank intends to achieve its policy targets; ii. State reasons for adopting such monetary policies and means; and iii. Contain a review and assessment of the progress made in the implementation of monetary policy by the Bank during the period to which the preceding Monetary Policy Statement relates. 2. The Cabinet Secretary shall - by law - lay every Statement submitted under subsection (l) before the appropriate committee of the National Assembly not later than the end of the subsequent session of Parliament after the Statement is so submitted. 3a. The Bank shall - by law - publish in the Kenya Gazette; t ( I I i I I I I i I l I I I I I I I I I I I I I I I .i l I I I I'l j i t -F ), t i t I I t 29thJuly,2O16 THE KENYA GAZETTE 2951 i) Its Monetary Policy Statement; and ii) Its Monthly Balance Sheet. 3b. The Bank is further required to disseminate key financial data and information on monetary policy to the pubtic. 4. In subsection (2) of section 48, the expression "appropriate committee" means the committee of the National Assembly appointed to investigate and inquire into matters relating to monetary policy. Executive Summary This Monetary Policy Statement provides the direction of monetary policy in 2016. lt also reviews the outcome of the monetary policy,stance adopted in the second halfof20l5. Overall month-on-month inflation remained wi.thin the Govemment target range from July to November, but exceeded the 7.5 percent upper bound of the target range in December 20 I 5 largely due to high food prices, and the impact of the rcvised Excise taxes implemented from l't December,2015. It rose gradually from 7.0 percent in June 2015 to 8.0 percent in December 2015. The 12- month non-food-non-fuel inflation rose to 5.6 percent in December from 4.6 percent in June, largelj due to the revised Excise taxes. However, there were no evident adverse demand pressures in the economy reflecting the impact of the monetary policy measures. The decline in intemational oil prices coupled with the stability of thc Kenya Shilling mitigated any risks of imported inflation. Most currencies were volatile against the U.S. Dollar in July and August, 2015 largely due to rlr" ;mpact of the volatility in China's financial markets, continued strengthening of the U.S. Dollar, and capital o[rtflows from emerging xi'rkets reflecting weaker growth prospects and expectations of higher interest rates in the U.S. The Kenya Shilling has remained stable a;rinst the U.S. Dollar since September supported by a narrowing current account deficit due to a lower import bill f6r petroleurn producrs and consumer goods, improved tea and horticulture exports, strong diaspora remittances, and improved market discipline. [n additit'i:. the Kenya Shilling strengthened, on average, against the Sterling Pound, Euro, and the major regional currencies. The CBK monetary rolicy operations ensured stability in the foreign exchange market during periods of short-term volatility. The Monetary Policy Committee (MPC) tightened the policy stance by raising the Central Bank Rate (CBR) to 11.50 percent in July 2015 from 10.0 percent in order to anchor inflationary expectations which were attributed largely to exchange rate depreciation. In additiOn, the Kenya Banks' Reference Rate (KBRR) was raised to 9.87 percent in July, from 8.54 percent. The effectiveness of liquidity management instruments was enhanced through the introduction of a 3-day Repo, and by raising the maximum acceptable rate on the Term Auction Deposits (TAD) inskument to 250 basis points above the CBR. The money markqt was hrrbulent in September and October 2015 following pressures on the Govemment borrowing programme, and the placement of Imperial Bank Limited into receivership. The CBK used Reverse Repos to address the resultant temporary liquidity shortages in segments of the market. The monetary policy stance in 2016 will aim at maintaining overall month-on-month inflaticn rate within the Govemment's target range of2.5 percent on either side ofthe 5 percent target. The price stability objective aims at supporting a strong and sustainable growth in the medium-term. The level of foreign exchange reserves together with the Procerrtionary Arrangements with the Intemational Monetary f'und (IMI) will continue to provide an adequate buffer against shon-tenn shocks. Overall macroeconomic stability and sustainability of public debt witl be supported by continued.coordination of monetary anci fiscal policies. Considering the inflation and growth objectives in the Govemment Budget Policy Statement in 2016, monetary policy will aim at ensuring that annual growth in broad money (M3) is lT.2percent by March 2016, 14.6 percent by June, 19.5 perccnt by September and 17.4 percent by December. Net Domestic Asset (NDA) of the CBK is projected atKsh. -272 billion in March 2016, Ksh. -251 billion in June, Ksh. -240 billion in September and Ksh. -270 billion in December. The annual growth in credit to the private sector is projected at 17.5 percent in March 2016, 15.3 percent in June, 15.4 percent in September and 76.4 percent in December. The Net Intemational Reserves (NIR) targets of the CBK are.USD 5,784 million in March 2016, USD 5,900 millon in June, USD 5,852 million in September and USD 6,283 million in December. Monetary policy will aim at ensuring that movements in the short-term interest rates support the Bank's primary objective of price stability. The planned reduction of Govemment doryrestic borrowing during the period is expected to ease pressure on interest rates. The Bank will also continue to review and enhance the effectiveness and effrciency of its monetary policy instruments in order to maintain price stability while ensunng financial sector stability. Global economic growth recovery in 2016 is expected to be uneven across the advanced and emerging market economies. The slower growth prospects in China and other emerging markets, lower commodity prices, as well as the possibility of tight financing conditions following commencement of tightening of U.S. monetary policy remains the main risks to global growth outlook. The CBK will continue to work closely with the National Treasury and regional Central Banks in order to ensure the effectiveness of monetary policy through policy coordination. The Bank will also continue its regular interactions with stakeholders in the financial and real sectors to obtain feedback, and ensure the timely release of relevant monetary and financial data. The Kenya Banks' Reference Rate (KBRR) framework will be reviewed to improve it as a transmission mechanism, while providing transparency in credit pricing to consumers. 1. Introduction This Monetary Policy Statement (MPS) provides the direction of monetary policy for the year 2016.lt also presents the outcome of the monetary policy stance adopted in the second half of 20 I 5: Price stability remains the primary objective of monetary policy formulation and implementation. The CBK targets for Net Domestic Assets (NDA) and Net Intemational Reserves (NIR) are the operational parameters. The Bank also monitors targets for key monetary aggregates such as broad money (M3) and credit to the private sector. The Cenhal Bank Rate (CBR) signals the monetary policy stance, and is the base for all monetary policy operations. The Bank's participation in the foreign exchange market is guided by the need to maintain adequate level of foreign exchange reserves, meeting the Govemment's extemal obligations, and ensuring stability of the value of the Kenya Shilling. The CBK foreign exchange reserves and the Precautionary Arrangements with the Intemational Monetary Fund (IMF) provide an adequate buffer against short-term shocks. On the domestii scene, high food prices and the revised Excise taxes have exerted signific,ant upward pressure on prices and, consequently, overall inflation. The revised Excise taxes conhibuted to the significant rise in the prices of alcoholic beverages and tobacco products. However, a stable exchange rate of the Kenya Shilling and lower prices of petroleum products reduced the risk of 2952 THE KENYA GAZETIE 29thJuly,2016 imported inflation. On the global scene, a modest but uneven recovery of the global economy is expected in iOtO across the advanced and anerging market economies. The rest of this Policy Staternent is organized as follows. Section 2 reviews the outcome of the monetary policy stance proposed in the June 2015 MPS while Section 3 describes the curent economic environment and outlook for2016. Section 4 concludes by outlining the specific monetary policy path for the period January to December 201 6. 2. Outcomes of the Pollcies in theJune 2015 Monetary Policy Statement The overall aim of the Monetary Policy Statement for June 2015 (36thMPS) was to set.monetary policy targets that would ensure low and stable inflation, encourage growth, support long-term sustainability of public d6bt through stable interest rates and" by anhancing financial access within the economy, confiibute to lowering the cost of doing business in Kenya. The specific outcomes of the policy proposals in the 36tr MPS are described below. a. Inflation The Monetary Policy Committee (MPC) has been pursuing a policy stance aimed at anchoring inflation expectations since June 2015. The CBR was raised to ll.5 percent in July 2015, from 10.0 percent in June. Overall month-on-month inflation remained within the Govemment target range from July to November, but exceeded the 7.5 percent upper bound <if the target range in December 2015 (Chart 1a). It rose gradually from 7.0 percgnt in June to 8.0 percent in December 2015 largely reflecting increases in the prices of food, and the impact of the revised Excise taxes which came into effect on lst December, 2015. Notably, the contribution of food inflation to overall inflation rose from 4.1 percentage points in August to 5.4 percentage points in Decernber. The rnain food items with increased prices were Irish potatoes, tomatoes, kales (Sukuma wiki), carrots, cabbages, onions, beef with bones, and avocados, which contibuted 2.3 percentage points to the overall inflation in December (Table 1). These items account for about 8.0 percent of the total,Consumer Price Index (CPI) basket, and 22.3 percent of the food basket. Price increases for most of these items were largely due to high tansport cosls during the rainy season, and lower production in some of the key production regions following pest infestation. The alcoholic beverages and tobacco products bontributed 0.3 pcrcentage points to overall inflation and 1.2 percentage points to the non-food-non-fuel (NFNF) inflation (Chart lb). Consequently, the NFNF inflation increased to 5.6 percent in December from 4.7 percent in July.. However, there rvere no evident adverse demand prcssures in the economy since growth in credit to private sector was consistent with the projected growth path. The decline in the prices of petroleum prices coupled with stability of the exchange rate of the Kenya Shilling moderated any risks of imported inflation. Chart la: l2-Month Inflation in Broad Measures (%) Souree: Kenya National Bureau of Statistics and CBK Chart lb: Contributions to l2-Month Overall Inflation (%) Source: Kenya National Bureau of Statistics Table l: Prices of Key food items driving inflation (Ksh/Kg) I I I .f --1 .rS'j =t .I r ,L E= === 3tE =E}EEE I + *a..- * - i-d a N-e r--he r.- 29th July, 2016 THE KENYA GAZETTE 2953 Jm- l5 ADr- l5 Jut- I 5 Oct- l5NoFl5 Dcc-15 Cl[ryc ln Pr (Nr16/Dee19 --_l lcc ('/") (Dcc-la/Dcc-15) Spimch 4t 47.7 K.5 46 4 455 aa-n 1,1 t o-a Kab-SiamWiki 33.O 42.a 37.7 38.8 37.5 t7-t -1.t ta.7 T.mqres 9() 1 1t29 t3 t(n 7 1o7.6 123-5 t5-a aq-1 Cetbaes 32.6 49.3 42.O 43.7 43.4 4:j.3 -o.2 tuB.5 Cat 55-3 72.A 85.O 7a.3 77.2 ao.a 1.2 49.6 o 2 1(44 l't9 6 t2t 6 124.7 1343 4.1 .,6.3 PGtcs (Irislr) 6.3 63.6 63.2 73.4 74.1 76.1 -2., 61.7 Source: Kenya National Bureau of Statistics i. Credit to Private Sector The growth in credit to private sector remained strong in the second half of 201 5 (Table 2). The l2-month growth in credit declined gradually from 20.5 percent in June to 18.0 percent in December 2015, and was consistent with the rqonetary policy stance and desired inflation profite. Credit growth in the period was largely towards the key sectors of the economy including: agriculture, manufacturing, trade, transport and communication, building and construction, business services, real estate, and finance and insurance. The deceleration in credit growth to the mining and quarrying sector was attributed largely to the delayed regulatory framework for the sector. Table 2: Annual Growth in Private Sector Credit across Sectors (%) Source: Kenya National Bureau of Statistics ii. Developments in the Monetary Aggregates and Impact of Financial Innovations Broad money (M3) was within ttre target throughout the second half of 2015, white the private sector credit was closely aligned to the projected path (Table 3). The CBR signalled the monetary policy stance and formed the base for all subsequent monetary policy operations. The conduct of monetary policy by CBK in order to achieve its price stability target was on the basis of the monetary aggtegate taryeting framework. The NDA and NIR indicative targets for December 2015, and the Monetary Policy Consultative Clause (MPCC) on inflation under the Precautionary Arrangements with the IMF were met. Under thd MPCC, overall month-on- month averaged over three months should be within the Govemment taf,get range. Table 3: Actual and Targeted Growth in Key Monetary Aggregates Source: Cenlral Bank ofKenya The predictability of money demand continued to be affected by an unstable money multiplier and the long-term decline in the velocity.of money in circulation. The money multiplier remained unstable in the period, fluctuating between 5.9 and 7.0 while the velocity of money declined from 2.3 in December 2014 to 2.2 in September 2015. These outcomes on velocity of money and money multiplier are associated largely with financial innovations such as the mobile phone platforms'which have continued to affect the design and conduct ofmonetary policy. The CBK continued to implement measures aimed at improving the efficiency of the banking sector as well as financial inclusion in order to enhance the monetary policy transmission mechanism. Thc commercial banks' branch network increa3ed from 1,476 in June 2015 to 1,508 in December 2015; this increase was distributed across all the counties in the country. Similarly, the Agency Banking model continued to expand; a total of 17 commercial banks had been licensed by the CBK to undertake Agency banking by December 2015. The ba;ks have conffacted 39,754 active agents which had facilitated 221.6 million cumulative transactions valued at Ksh. L2 trillion by pecanber 2015. This was a notable increase, from September 2Ol5 when the numbet of Agents stood at 38,871, and the cumu[iive transactions atl93.4 million valued at KSh. 1.0 trillion. > JlD-as Jul - 15 rtup-a 5 Scrl5 Oc t- 15 l\ov- 15 Dcc- l5 ACrlculwe- 24-O 2a-5 2a-7 21 -4 17.2 t2.s t4-6 20-o 20.2 2()-a 22.2 Tracle 25-9 26-7 25-9 23-6 22-2 23 -2 ElulEirc & cffEtrrctld l5-5 t 9.a 22-l 37 -6 34.O 32.2 33.4 a3 -4 30-o 29-O 32- | 32-3 3t-7 43.3 46. A 50.5 26-4 2a-5 FElctde 19.4 I 5.5 l5.o t2-5 9.4 I O.6 7-6 l\,lnlrc & olErrvlrc -22-t t7 -9 I a.o -5-4 l5-5 ll-3 PrlEte l'pu.eholds 3t-2 2A-6 2a-5 26-6 ta -2 zt.6 ZL.5 2t -o t 9.o ra o 1S-3 14 -3 r 9.3 zo.9 otl-la *tivflB -ll.l 12.6 t4.2 - o.9 t4-6 Tot-l 2.)-3 2L-2 2t-o 2()-a l9-5 ta-a la-o hrn-r( -LiLla S.tLr< Nas-la D.c-15 Acml BrmdMrrrwltvl3 (IGtr Billim) 2-553-O Lv9.O 2-569.9 2_556.O 2574-7 2-ffi.5z65a.2 Trrmt Rr.gd MlffvM? /Krh Billim\ L4a'r 2 25R25 L6tl I 2At 5 2 6'tt o 2'7(t 5 AchDl Rercre M<rev (Katr Billim) aa) o 1R1 1 a6a 4 1'16 -r 414 S 1Sl I 392.4 rrr@f Rc€ro Ivllrev rKrh Flillim) 354.6 3s3.6 36/.5 153.4 360.9 !11.4 4fi).1 AcnElNef Fd.i6 Aefr6f CFIK aKihFlillim) 565 2 554 O 5S'7.7 529_3 5q)-5 5ao.6 621.4 TarEB fd Nct Fdcim Ass of CBI( (Itutr Billio) s7< o s)a3 <r? q s?n 5 sla a \14 a 547.3 AcMt Nct Dorncsic Asa of CBK (trktr Etillim'l -229.O Tar.g.f NetIhddic Aseh 6f (:BK fKsh Ftillim'| -2211.4 - t'74 '7 - t6'7 -l A.hEl Cr-dit td trhE ectu rK$ Flillim) Lm22 2 I t3 R 2149fl 2tu66 22(Y4 2,223.6 Tar€t Crcdrt b riwaE sctd (tr<sh Billio) )m* I ,ffir ) 1)11 ,1S r )aa) , lqR ? 2.?27.1 n/IcmortdumltcN l?-mlmff 6.ffi in acfiEl R.- ffi-T-24s I I 'r4 l2-mcdr s(ryth in Brad Mtry, M3 (Percent) 14.6 16.4 t4.o 13.5 13.9 13.5 t4.t The mobile phone continued to be an important platform for financial services thereby reducing transaction costs. Mobile phone money transactions were estimated at Ksh. 8.6 billion per day in December 2015 compared with Ksh. 6.5 billion in June 2015. This points to the potential oftechnology-led delivery channels in increasing access to- financial services. iii. Interest Rates and Liquidity Overall liquidity conditions were tight between July and October 2015 with the interbank interest rate remaining above the CBR. This was consistent with the monetary policy tightening bias stance adopted by the MPC, with the CBR having been raised to I 1.5 percent in July 2015 from 10.0 percent in order to anchor inflationary expectations. The money market was turbulent in September and October 2015 following pressures on the Govemment borrowing programme and the placement of Imperial Bank Limited into receivership. Following the action taken by the CBK on Imperial Bank in October, there were immediate misrepresentations in the social media with regard to the viability of some banks. This resulted in the loss of deposits in some of these banks due to biased expectations. These developments tightened further the liquidity conditions and exerted upward pressure on short-term interest r'ates partly due to skewed distribution of liquidity. The temporary pressure on the Govemment borrowing programme coupled with the policy measures adopted to anchor inflation expectations following exchange rate pressures contributed to a significant rise in Treasury bill rates in October. The 91-day Treasury bill rate rose sharply from an average of 8.3 percent in June to an average of 21.7 percent in October. The CBK used Reverse Repos to address the temporary liquidity shortages in segments of the market. In addition, the Govemment issuance of a Syndicated Loan in November dampened pressure on domestic borrowing. The tight liciuidity conditions eased in October with the interbank rate declining to below the CBR (Chart 2). The liquidity dishibution in the interbank market have improved as evidenced by the decline, and subsequent stability, in the interbank rate in November and December. The 9l-day Treasury bill rate declined to an avetage of 9.8 percent in December. The CBK is working with stakeholders in the banking sector to explore shategies for enhancing redistribution of liquidity through development of Horizontal Repo market. The CBK continued to work with the Kenya Bankers Association (KBA) and banks to implement initiatives in the banking sector aimed at reducing the cost of doing business and promoting transparency in the banking sector. These initiatives includei innovation by banks; improving transpar€ncy in pricing credit through publication of individual commercial banks' lending rates on the CBK website; strengthening the'Kenya Bank Reference Rate (KBRR) framework; strengthening collateral ownership; supporting modemization of the Lands and Companies Registries, and development of an electronic registry for moveable assets; reducing time costs in realizing collateral; Currency Cenhes and Agency Banking; Credit Reference Bureaus; and strengthening the National Payment System. The CBK revised the KBRR to 9.87 percent in July 2015 from 8.54 percent. The average commercial banks' lending rates increased to 18.3 percent in December 2015 from a revised rate of 16.l percent in June 2015, partly reflecting increased cost of funds (Table 4). The increase in lending rates was reflected across all the bank sizes, but was more pronounced in the small bank category reflecting competition for funds. The average deposit rate increased from 6.6 percent to 8.0 percent during the period reflecting increased banks' competition for deposits. The spread between the average commercial'banks' lending rate and deposit rate increased from 9.4 percent to I 0.3 percent in the period. Large banks had the highest spread on average .during the second half of 2015 due to somparably lower deposit rates. The MPC continued to engage the Chief Executive Officers of banks on various issues through regular forums after MPC meetings. This has facilitated a platform for moral suasion and provided a regular feedback mechanism. Chart 2:Trends in Short-Term Interest Rates (%) Source : Central Bank of Kenya Table 4: Trends in Commercial Bank Interest Rates and Spreads (%) I I { I I l I i .I I -t i ,l ( tl, I'. 't '1 [' /lE -+ = = = = = = = = = = = = = = = - = = = = = = = = = = = = = = g5*Fggg g**gS s € g = tE € t # 5 g g Averrgc Irndlng rrtcs (o/o) Averrge Demsit rates (oZ) .Aver.se Sprerd SnrllI\zredlumLrr Over.I ISmrl I1VI e dl umL.rqeOverrl ISmrll IIrdedium Ihr Overrll Jun- I 5 6.5 6.O 6.O r6. l 6.8 8.O 5.1 6.5 9.7 8.O o.9 9.4 Jul- l5 6.4 5.8 5.9 l6.o 7.O 7'7 5.3 6.3 9.3 8.1 o.6 9.7 Auq- I 5 7-O 5.8 5.8 15.9 7.5 7.-7 5.'7 6.9 9.5 8.O o.l 9-O SeD- I 5 7-7 7.O 6.5 t 6.8 7.5 7.9 6.5 7.3 toI 9-2 o.o 9.5 Oct- l5 7.8 6-3 6.5 t6.6 9l 8.O 6.5 7.5 4.7 8.3 o.o 9.O No* l5 a-7 7-2 6.9 17.2 9.4 4.2 6.4 7.4 9.3 9. I o.5 9_8 Dec- I 5 9.O 8.5 8.O 18.3 9-4 8.O '7'-4 8.O 9.6 I 10.6 o.6 lo.3 Source : Central B ank of Kenya I 29thJuly,2O16 THE KENYA GAZETTE 2955 b. Exchange Rates-and Foreign Exchange Reserve Developments i) Exchange Rates and Extemal Sector Developments Most currencies were volatile against the U.S. Dollar in July and August, 2015 largely due to the impact of the volatility in China's financial markets, continued strengthening of the U.S. Dollar, and capital outflows from emerging markets reflecting weaker growth prospects and expectations of higher interest rates in the U.S. Consequently, the major intentational and regional currencies depreciated against the U.S. Dollar in the period (Charts 3a and 3b). The global strengthening of the U.S. Dollar reflected the strong recovery in the US economy, and uncertainty in the financial markets attributed to the timing of the increase in U.S. interest rates. The Kenya Shilling strengthened, on average, against the Sterling Pound, Euro, South African Rand, and the major regional currencies from September. This reflected the resilience and diversified nature of the Kenyan economy relative to its peers. In the region, the South African Rand weakened significantly against most currencies largely due to the drop in commodity prices, widening trade deficit aftributed to weak growth in its main trading partners including China, and labour unrests in the mining sector which have affected growth. The foreign exchange market has remained stable since September 2015 supported by a narrowing current account deficit largely due to a lower import bill for petroleum products, recovery in tourism, tea and horticulture exports, strong diaspora remittances, and improved market discipline. The l2-month cumulative current account deficit was estimated at about 8.2 percent of GDP in December 2015 down from 10.4 percent of GDP in December 2014. In particular, the annual growth in eamings from tea exports rose from -l.l percent in June 2015 to 16.6 percent in December. The CBK's foreign exchange reserves together with the Precautionary Arrangements with the Intemational Monetary Fund (IMF) provided an adequate buffer against short-term shocks. The lower petroleum products import bill eased the demand for foreign exchange following the sustained decline in the international crude oil prices in the second half of 2015. The decline in intemational oil prices reflected increased production from the United States and Liby4 reduced demand particularly from China following dimmed growth prospects, a shongcr U.S. Dollar in the global markets, and sustained production by the Organization of Petroleum Exporting Countries (OPEC). Subsequently, Murban crude oil prices declined from USD 63.7 per barrel in June 2015 to USD 37.3 per banel in December 2015 (Chart 3c). Consequently, the proportion of oil imports in total merchandise imports declined from 21.3 percent in 2014 to 15.5 percont in 2015, The l2-month cumulative proportion of imports of goods and services financed by exports of goods and services incroased from 54.7 percent in June 2015 to 60.9 percent in December 2015. Although the value of imports of machinery and hansport equipment declined by I1.4 percent in 2015, its share in total imports rose slightly to33.4 percent from32.4 percent m2014. This partly reflected imports of equipment towards construction of the Standard Gauge Railway Chart 3a: Movements of Exchange rates of the Kenya Shilling Chart 3b: Movements of Exchange rates of the Kenya Shilling and and Major Intemational Currencies Against the U.S. dollar Major Intemational Currencies Against the U.S. dollar (2nd (2nd January, 2015=l) January,20l5=l) Source: Central Bank of Kenya Chart 3c: l2-Month Cumulative Exports/I2-Month Cumulative Imports (%) Note: Exporls and imports comprise goods and services Source: Central BankofKenya and Kenya Revenue Aulhortty &b lrq & ilr, E r_ g E ,l t I I El"l t.t rrrrr- (UrO Ill .5rll IEM ===jrt € I E - E THE KENYA GAZETTE 29th July,2O16 ii) Foreign Exchange Reserves The CBK level of usable foreign exchange reseryes rose to USD 7,071.7 million (equivalent to 4.5 months of import cover) at the end of Decernber 2015 from USD 6,682.5 million (equivalent to 4.2 months of import cover) at the end of June (Chart 4). The build- up in foreign exchange reserves was due to purchases from the market and the proceeds of the Govemment Syndicated Loan contacted in November. This level of reseryes together with the Precautionary Arrangements with the IMF provided an adequaE bulfer against short term shocks. The IMF's Executive Board completed the flrst review of Kenya's performance under ttc programme in September 2015, and made available an additional SDR 54.3 million, bringing the cumulative amount available under the arrangements to SDR 434.2milhon (about USD 610.7 million). This boosted theBank's capacrty to respond to.short-term volatility in the foreign exchange market. Chart 4: CBK Usable Foreign Exchange Reserves Note: The CBK usable foreign exchange reserves refer to reseryes available for use,without any resffictions hefi by the Cenffal Bank. They exclrde reserves held by CBK on behalf of the Government or commercial banlc. Source : Centra I Bank of Kenya c. Economic Growth The economy remains robust; real GDP growth accelerated to 5.8 percent in the third quarter of 2015 compared with 5.6 percent in the second quarter and 5.0 percent in the first quarter (Chart 5). This performance was supported by higher public investment spending, improved weather conditions that boosted agricultural and hydro-power electricity production, lower oil prices, and a -higher country profile. In addition, strong performance ofconstruction, agriculture, wholesale and retail trade, transport and storage; mining and quarrying, and electricity and water supply during the period was an indication of the sustained growth in the economy supported by macroeconomic stability. The finance and insurance sector which grew by 10.1 percent continued to proyide strong support to the growth perfonnance. Chart 5: Quarter-on-Quarter Sectoral and Overall Real GDP growth rates (%) r 2-o I l.o r o-o g-o = 7-o =66E i:3 I s-o € :.: I -rB -3-OrrhtlhrrHuhLr! Gl @2 A3 G4 Al A2 A3 A4 At G2 A3 A4 Gl A2 G3 201 2 20r 3 201 4 20t 5 -Fa6-n-- ^ ln-okn- -A-ra-uarura ---OY-..aa E--a ODt Source: Kenya National Bureau of Statistics d. Fiscal Developments and Debt The Government's borrowing plan in the first half of the Fiscal Year 2dl5it6 ensured that the build-up in domestic'debt was consistent with the thresholds set in the Medium-Term Debt Management Strategy. The Govemment continued to review its borrowing plan in line with market conditions and prudent budget management. The issuance of a Syndicated Loan in November 2015 eased pressure on domestic borrowing and domestic interest rates. e. Other Activities of the MPC, and Policy Coordination The MPC held forums with Chief Executive Officers of commercial banks after every meeting during the second half of 2015. The Committee also continued to improve on the information gathering processes through the market Perception Surveys and communication with key stakeholders on the MPC decisions to obtain feedback. The MPC Press Releases were continuously i I l I I I i I I I I I l }] tr; t t ..so I I "- i a T -=- t I Z s + I ::: I r-a i---- (usD Mrrx6ht ,l I 29th July,2O16 THE KENYA GAZETTE 2957 reviewed to make them better focused to the public, media, financial sector and other stakeholders. As a result, the media and public understanding ofmonetary policy decisions and their expected impact on the economy continued to be enhanced. In July.2015, the Governor who is also the Chairman of the MPC, held meetings with'the National Assembly Departmental Committee on Finance, Planning and Trade as well as the Senate Standing Committee on Finance, Commerce and Budget to discuss developments in exchange rates, inflation, economic growth, and interest rates and spreads. The Chairman also held a press conference in Septernber 2015 to brief the media on measures undertaken by the CBK to support macroeconomic and financial stability. The Govemor also participated in a Meeting of the Govemors of the East African Community partner states' held in December ZbtS, ln Tanzania,to review exchange rate developments in the region and agree on coordinated measures to address the challenges. Given the risks posed by the persistent turbulence in the global financial markets, continued commitment to the price stability objective, market discipline, and strolg intemational reserves buffers were identified as key to ensuring stability in the regional exchange rates. 3. The Current Economic Environment and Outlook for 2016 a. International Economic Environment Global gro.wth isprojected to riseto 3.4 percent in2016 from 3.1 perccnt in 2015, butthe recovery is expebted to be uneven across the advanced and emerging market economies (Table 5). The risks to the global growth outlook relate to the slower growth prospects in China and other emerging markets, lower commodity prices, as well as the possibility of tight financing conditions following comm€ncement of tightening of U.S. monetary policy. However, the impact on Kenya will be limited due to weak hade and financial linkages to these economies. A6out 40 percent of Kenya's exports are to Sub-Saharan Africa (SSA), while the country does not depend on only one major export like most commodity dependent economies. The projected shong growth in SSA countries is expected to support Kenya's exports and cnsure exchange rate stability. Despite weak prospects for commodity prices, a modest pick-up in global inflation is expected in 2016. Inflation in advanced economies is expected to rise, albeit unevenly, from 0.3 percent in 2015 to 1.1 percent in 2016 while that in emerging market economies is projected to pick-up slightly from 5.5 to 5.6 percent. Inflation prospects in emerging market economies reflect the conflicting implications of weak domestic demand and lower commodity prices versus possible currency depreciations. Table 5: Performance and Outlook for the Global Economy Source: IMF World Economic Outlook b. Domestic Economic Environment i. Economic Growlh The Bank aims at price stability so as to support sound and sustained economic growth. The Govemment projects real GDP growth to rise from an estimated 5.6 percent in 2015 to 6.0 percent in 2016. The growth outlook will be supported by increased economic activities with the completion of the Standard Gauge Railway and continued investments in other inAasfucfural projects such as roads, energy and port; increased agricultural production, and a recovery in tourism, The growth is also expected to benefit from increased investments and domestic demand following enhanced investor confidence and the ongoing initiatives to deepen regional integration and the development of the counties, The MPC Market Perceptions Survey conducted in January 2016 showed optimism by private sector firms for a stronger growth in 2016 relative to 2015 on account of: macroeconomic stability; infrastructural development benefits; robust activity in the construction sector; rebound in the tourism sector due to improved security; lower intemational oil prices which will benefit manufacturing through lower costs of production; improved agricultural sector performance; implementation of measures to enhance govemance in Govemment: all these will have booited tbrergn investor confidence. However, there are downside risks to growth including: the high recurrent expenditure by the Govemmenr: political noise which could affect confidence; insecurity which, though improved, still remains a'challenge; high interest rates; and rising extemal debt. ii. External Sector and Foreign Exchange Market The Kenya Shilling is expected to be stable in 2016 on account of a narrowing current account deficit attributed to a lower oil import bill relecting lower international oil prices and improved performance of tea and horticulture exports; strong diaspora remittances; rccovery in tourism, improvod market diicipline; and increased foreign direct investment in infrastructure. Despite expected imports of machinery and tansport equipment related to the ongoing Standard Gauge Railway project, the current account deficit is expected to ease from an estimated 8.2 percent of GDP in 2015 to 8.0 percent of GDP in 2016. In addition, the projected growth recovery in SSA economies and that of Kenya's main trading partners is expected to boost regional trade. The Kenya Shilling exchange rate will also be supported by the adequate buffer of foreign exchange reserves and the Precautionary Arrangements with the IMF. \y'\lorH A.dvrnce<t Econonles I-lniEd StaEs Japan ErcA.@ I-hribd I(iilgdom Or}Er Advanrced eorcmies Ere rglr'rg and develolrlng e conorrae s Sub-SatErc Afi-ie Develolring A,si a CtriIE India ^,,Iiddle East and Nlorttr Afi:ica fteal(GDP Grcwth 3-4 2-4. 2-6 1.O t-7 2-2 2_4 4.O 6-3 6-3 7-5 3-6 3-4 a-a 2.4 o.o o-9 2.9 2-A 4-6 5-O 6.4 7-3 7-3 2-a 3-1 l-9 o.6 l-5 2-t 4-O 3.5 6.6 6-9 7-3 2-5 2958 THEKENYA GAZETTE 29th July, 2016 The main risks to the foreign exchange market in 2016 relate to possible volatility in the global financial markes due to the projected slowdown in China's growth and other emerging markets, and the possibility of tight financing conditions following commencement of tightening of U.S. monetary policy. iii. Inflation Overall inflation is expected to ease and stabilise within the Govemment's target range in 2016 supported by the monetary policy measures, lower intemational oil prices, a stable Kenya Shilling exchange rate and the declining intemational food prices which have dampened any upside risks to domestic food prices in the case of imports, and moderate electricity prices with increased output of geothermal power generation. However, the main risks to the inflation outlook remains the vulnerability fo adverse weather conditions given the dominance of food in the consumer basket, and volatility in intemational oil prices. iv. lnterest Rates lnterest rates are expected to ease in 2016 with lower inflation and a stable exchange rate, coupled yith improved liquidity conditions in the money rirarket. In addition, the CBK will work with stakeholders to improv'e the KBRR framework in order to enhance its capacity as a monetary policy transmission mechanism, and to ensure hansparency in credit pricing. The main risk to the outlook on interest rates is the intemational economic developments or supply side factors which could prompt additional measures by CBK to alleviate any adverse expectations with respect to inflation and /or'exchange rate movements. v. Fiscal Policy Government borrowing in 2016 is anchored in the Medium-Terrn Debt Management Strategy which aims at mqintaining public debt at sustainable levels. The planned reduction in domestic bonowing in the Fiscal Year2015116, through expenditure rationalisation, to Ksh. 168.2 billion from Ksh.22l.5 billion is expected to dampen pressure on bothdomestic borrowing and domestic interest rates. The CBK will continue to work with the National Treasury to strengthen the co-ordination between monetary and fiscal policies. vi. Confidence in the Economy Confidence in the economy is expected to continue to improve in the 2016 due to macroeconomic stability, improved security, and highir country profile. Specifically, Kenya was among the top 10 reformers in 2015 in the World Bank's Ease of Doing Business Index, with improvements especially in the provision of electricity, access to credit, and ease of registering property. The most recent Sovereign Rating by Moody's shows expectations of continued macroeconomic stability, and sustained growth. The MPC Market Perception Survey conducted in January 2016 showed increased optimism by private sector firms for the business environment to improve in 2016 on account of improving macroeconomic environment, public investment in infrastrucfure, increased global focus on Kenya, improving tourism due to improved security and falling intemational oil prices. 4. Direction of Monetary Policy in 2016 Monetary policy in 2016 will focus on: setting monetary targets which are consistent with the objective of achieving and maintaining A low and stable inflation, encouraging growth, and supporting the long-term sustainability ofpublic debt; and, elhancing financial inclusion. a) Monetary Programme and Foreign Exchange Reserves The monetary targets for March to December 2016 are consistent with the Medium-Term Government Budget Policy Statement for 2016 summarised in Annex L The monetary targets for the period are presented in Table 6. Monetary policy will aim at ensuring that annual growth in broad money (M3) is 17.2 percent by March 2016, 14.6 percent by June, 19.5 percent by September and 17.4 percent by December. Net Domestic Asset (NDA) of the CBK is projected atKsh. -272 billion in March 2016, Ksh. -251 billion in Jrme, Ksh. -240 billion in September and Ksh. -270 billion in December. The annual growth in credit to the private sector is projected at 17.5 percent in March 2016, 15.3 percent in June, 15.4 percent in September and 16.4 percent in Decernber. The Net Intemational Reserves (NIR) targets of the CBK are USD 5,784 million in March 2016, USD 5,900 million in June, USD 5,852 million in September and USD 6,283 million in December. Monetary policy will aim at ensuring that movements in the short-temr interest rates support the Bank's primary objective of price stability. The Bank will also continue to review and enhance the effectiveness and efficiency of its monetary policy instruments in order to maintain price stability while ensuring financial sector stability. These monetary targets are expected to enable the Bank maintain overall inflation within the current allowable margin of 2.5 percent on either side of the Government's medium-term target of 5 percent in order to anchor inflation expectations. The CBK foreign exchange reserves and the Precautionary Arrangements with the IMF will provide a buffer against short-term shocks in the foreign exchange market. The monetary policy stance will aim at ensuring that short-tenn interest rates remain stable which will support growth and ensure the long-term sustainability of public debt. The coordination of monetary and fiscal policies will also support macroeconomic stability and sustainable public debt. The Bank will also continue to enhance the effectiveness and efficiency of its monetary policy instruments. The CBK will also continue to work closely with the National Treasury and regional Central Banks in order to enhance the effectiveness of monetary policy through policy co-ordination. Table 6: Monetary Targets for March to December 2016 MrF16 Jun-16 Seo-16 Dcc-16 Brmd IMrew- Vt3 (ICstr Billim) 2-At2 2-t 25 3-O55 3,t12 Resrue Mmv. RM (IGtr Billim) 39r 421 424 ffi Credit trr PrivaE Sectrr (tr<sh Billim) 2-2(a3 2-3Aa 2-519 2.5W NFA of CBI( fiktr Elilliorr) 63 671 6t 716 NDA of CEII( (IGh Bi[iorD -251 -2Al -270 l2-mmtl. qowth in Rl\l (Percerrt) 12.9 l3_ 1 r3.5 13.6 l2-monllr gowlh in NI3 (Percert) 17.2 146 195 t-7.4 l2-mmth sowth in Credit to Priwab Sect(r fPercent) 17.5 15.3 15.4 16.4 l2-mmrl. oowth in Rea! (fI)P fPercent) 5R 6.O Medium-Term l2-montlr overall Inflatim (Percent) Tilget 5.O 5.O 5.O 5.O Source: Central Bank of Kenya and the National Treasury 29th Ju'ly,2O16 THE KENYA GAZETTE 2959 The Bank will continue to monitor developments in the Monetary Targets and make any necessary reviews. The information will be reviewed and incorporated in the data so as to inform the MPC decision process accordingly. Monetary policy implementation will be based on the targets for NDA, NIR, RM and broad money (M3) to be achieved through Open Market Operations (OMO). The Repurchase agreements (Repos) and Term Auction Deposits instruments will be used to withdraw any excess liquidity in the banking system.on a timely basis and where necessary Reverse Repos will be used to inject liquidity. The achievement of the targets set will depend on stability in the intemational prices of oil, favourable weather conditions, and continued commitment by the Govemment to operate within the domestic borrowing target in the Fiscal Year 2015116 and 2016117. The success of the monetary policy measures will also depend on the effectrveness of the institutions charged with the responsibility of managing the supply side of economy that would have a direct impact on food and fuel prices. b) Measures to Extend Access to Financial Services and Enhance Market Ethciency The CBK will continue to support development of new products and innovations towards enhancing financial access in order to encourage economic growth. Appropriate legislation and regulations will be proposed to ensure that such innovations are operationalized accordingly so as to enhance market confidence. The Bank will monitor any new financial derivatives and /or innovatiorls in the market that could have adverse effects on market, stability. It will work with stakeholders in the banking and real sectors in order to enhance the monetary policy kansmission mechanism. The CBK will work closely with the other stakeholders fo facilitate a review of the KBRR framework with a view to improving its capacity as a monetary policy transmission mechanism, and thereby promoting kansparency in credit pricing. The CBK will continue to work with stakeholders to identiff and implement measures to enhance redistribution of liquidity in the interbank market. Forums with Chief Executive Ofl-rcers of banks through the KBA will continue to be held both to obtain feedback and to explain the background to MPC decisions. These initiatives will support improvements in the financial sector that contribute to the lowering of the cost of doing business. The CBK will also continue with its transparency policy through the timely dissemination of all the requisite data through its website. ANNEX l : MAIN MACROECONOMIC INDICATORS, 20 1411 5 -2017 1 18 Source: Budgel Policy Statement, 2016, National Treasury ANNEX 2: CHRONOLOGY OF EVENTS OF PARTICLILAR RELEVANCE TO MONETARY POLICY (ruLY - DECEMBER, 201s) 20lsl16 2or6/L', I zorzna I zort,rrs 'erwise indi Nalfuml a@unt rnd l,ri.Es R€I GDP GDP deflabr CPI Irdex (op) CPI Irdex (awg) 7.O 6.5 5.O 5.O o-3 5-a 6.4 5.3 5.6 l5 6.1 6.2 s-o 5-O -l -o 6.3 5.6 5-O 5.O -o.t 6.5 5.4 5.O 5.O .o-9 Irrwartlrnt and srvirrg IrNeffi Grcss Natioml Sawi(E Centralgowcmrem t udget Tohlrever Toal eperditre aDd rEtlqdiqg OweBlL t alre (@miffi bsis) ercl. grm OweEll balre (@tmitrffibsis) ircl. gm exl SGR Nomiml pulrlic debt, d Extcml sector Cfieffil balre, idudiqgoffcial mfes 26.9 t9.7 20_a 30,6 -4.7 -6-9 46.1 -7.2 23_5 l6- 1 2().3 29.6 -a- l -6.3 46s -'7 .5 22-24 l6-a 20.a 2a-5 -6.9 -5.7 44.6 -6-() 24.5 ta.7 2t.l 27.7 -5_4. -5.2 46_O -5-8 23-9 17,1 21.4 26-5 4.3 4.t 49.o -6.2 Date Events July a) The CBR was raised from 10.0 percent to I 1.5 percent to anchor inflation expectations b) Inhoduction of a 3day repo to augment the instruments for liquidity management c) The CBK revised the KBRR from 8.54 percent to 9.87 percent on 7"'July 2015 d) Uncertainty in the Eurozone and the global financial markets over the collapse of a multi-billion-Euro . bail-out for Greece, and its subsequent default on IMF debt August a) Dubai Bank Kenya Limited was placed under receiverslfp hy the CBK b)The European Commission signed a Memorandum of Undorstanding with Greece following approval by the European Stability Mechanism Board of Govemors for further rtability support and economic adiustnent programme c) Global financial markets were volatile following the Chinese stock market crash September The CBR was retained at I 1.50 percent in order to anchor inflation expectations October Imperial Bank Limited was placed under receivership by the CBK November The CBR was retained at I 1.50 percent in order to anchor inflation expectations December Commencement of normalisation of U.S. monetary policyr The Federal Fund Rate was raised by 50 basis Doints. GLOSSARY OF KEY TER.MS Overall Inflation Overall inflation is a measure of price change in the economy calculated as the weighted year-on-year movement of the indices of the prices charged to consumers of the goods and services in a representative basket established in a base year. The indices are derived from data collected monthly by the Kenya National Bureau of Statistics. Reserve Money Reserve Mohey is computed as the CBK's monetary liabilities comprising currency in circulation (currency outside banks and cash held by commercial banks in their tills) and deposits of both commercial banks and non-bank fmancial institutions (NBFIs) held by the CBK. It excludes Govemment deposits. Money Supply Money supply is the sum of currency outside banks and deposit liabilities of commercial banks. Deposit liabilities are defined in narrower and broader senses as follows: narrow money (Ml); broad money (M2); and extended broad money (M3). These aggregates are computed as follows: Narrow Money M0: Currency outside the banking system Ml: M0 + demand deposits of banks (or depository corporations). Broad Money M2: Ml + quasi (long term) money deposits i.e. time and savings deposits of banks and non-bank financial institutions. ,Extended Broad Money M3: M2 + residents' foreign curency deposits. Overall Liquidity L: M3 +'non-bank holdings of Government Paper. This however, is not a monetary ag+rcgatg. Kenya Banks' Reference Raie (KBRR) The KBRR is the base rate for all commercial banks' lending. It is currently computed as an average of the CBR andthe weighted 2-month moving average of the 91-day Treasury bill rates. PTG|2567lt5-r6 GAzErrENcncENo 5S9l THECRopsAcr (No. t6 of20t3) AGRICULTURE AND FOOD AUTHORITY COFFEE DIRECTORATE- AppucATroN FoR LrcENcEs rN TrD CoFFEE INDUSTRY NOTICE is givcn that pursuant to the pmvisions of section 20 (6) of the Cmps Act, 2013 and thc Coffcc Fonn Rules, 2012, rhc Coffc Direclorate of AFA has published thc list of applicants for thc grant of licences to various p€rsons who wish to provide scryiccs in the coffee industsy for thc year 20 I 620 I 7 . The purpose of the grant of the liccnces is to bnable the applicants to provide services as indicated-against thc kinds of liccnces applied for. Sincc the grant of licences may affcct the coffee growcrs within the country, such person(s) who may be affcctcd by the grant of such liccnce may raise objections. Any pcrson or body &sirous of making any rcpresentations and or objections m any of thc grant of such liccnscs as aforcsaid must do so by lettcr addrcssed to the Interim Head, Coffcc Directonte, Coffee Plaza, l0th Floor, Haih Sclassie Avenue, P.O. Box 3056640100, Nairobi The rcprcscntations and or objcctions" to be lodged with thc Directoratc should be done within fourtcen (14) days next following the date of tho noticc in thc Kenya Gazette; i J { I -t I i I I I I l ! I { l I _1 I ,t .i -d/ COFFEE DEALER.S LICENCE Name of Applicant Physical location Directors Eaglc Crown Coffcc Ltd., P.O. Box 52565fi2ffi, Nairobi 3rd Floor, Wakulima House, Hailc Sclassie Avenue, Nairobi Jackson N. Kanampiu D. Ngochi Simon Nyamu Africa Coffee Roastcrs (EPZ)ltd., P.O. Box 69819{n4m, Naircbi Athi Riter Export Ptocessing Zone, Kitcngela LR. No. 18474/122 Athi Rivcr lasse Bolander Henrik Frocsig Jcff Salter E I-ogistics Ltd., P.O. Box 64686- 00620, Nafuobi Studio ltrousc, Ground Floor, Suitc O.29, Plumslane, offOjilo Lane, hrthnds' Nairobi Evans S.K. Mburugu Jothem Muthuuri Tea & Coffee Connections Ltd., P.O. Box 14353{n800, Nairobi 26d Floor, Block B, Lotcsho Ridge, MK Plaza, L.R. 90/221, Nahobi Romal Shah Farzana Jiwa 29thJuly,2O16 THE KENYA GAZFTTE Name of Applicant Physical location Directors Rumani Agencies Ltd., P.O. Box 69819-00400, Nairobi Mageso Chambers, L.R. No./Plot No. 209 I 57 9 Moi Avenue, Nairobi Grace Nditi Ndoro James Mbuthia Muriuki WAREHOUSEMAN LICENSE Name of Applicant Physical ltcation Directors Africa Coffee Roasters (EPZ) Ltd., P.O. Box 6981940400, Nairobi Athi River Export Processing Zone, Kitengela LR. No.I8474/122 Athi River Lasse Bolandcr Hennk Froesig Ieff. Salter Dated the l9th July, 2016. I'tm1962076019620725 ALFRED BUSOLO TABU, I nte r im D i r e c tor -Ge ne ral. i I I r t