Dynamics of Monetary Policy in Kenya

This chapter provides a chronicle of monetary policy phases and outcomes in Kenya since the establishment of the Central Bank of Kenya in 1966. After detailed analysis of historical events and data spanning 50 years, it is found that monetary policy has evolved from an era of rudimentary monetary policy practice, a backward-looking monetary policy to a regime that is forward-looking, best characterized as transitioning to inflation targeting. During the 50 year journey, the Bank has made major milestones in the formulation of monetary policy. However, the interest rate capping law that came into force in September 2016, as the Bank celebrated its 50th anniversary, posed a threat to the achievements. The Central Bank was keen on having it repealed and this was attained in November 2019.