Kenya's central bank has held its benchmark lending rate at 10.5%, citing falling inflation and adding it will introduce a new rate corridor of plus or minus 250 basis points around the policy rate.
The corridor will help guide short-term market interest rates towards the central bank policy rate.
A Reuters poll of five economists had forecast that the bank was likely to hold the rate.
"Inflation is already within the target band, and is expected to decline further as food inflation is expected to come down," the central bank's monetary policy committee said in a statement on Wednesday.
Policymakers hiked the rate by a percentage point at an off-cycle meeting in June, and the increase is being transmitted through the economy, it said.
The central bank will introduce a new interest rate corridor of plus or minus 250 basis points around the policy rate, the committee said, to ensure its policy is more effective.
Applicable interest rate lowered to 400 basis points
"The monetary policy operations will be aimed at ensuring the interbank rate, as an operating target, closely tracks the CBR (Central Bank Rate)," the committee said.
To improve access to the central bank's discount window, the bank lowered the applicable interest rate to 400 basis points above the policy rate, it said, from 600 basis points.
Some commercial banks have been grappling with a liquidity crunch in recent weeks, which have sent the interbank overnight rate to more than 17% in recent days.
After the June hike by policymakers, concerns have started to emerge that the tight stance could stifle credit and economic activity.
Bankers’ association’s plea
The Kenya Bankers Association, an umbrella lobby for commercial banks, had urged policymakers to hold rates at this month's meeting, citing the potential hit to economic activity.
"The sustenance of the current monetary policy stance... would be appropriate," the lobby said in a research note issued days before the meeting.
Private sector activity slowed sharply in July on the back of inflation, weakening of the local currency and anti-government protests.
