EFFECTS OF MONETARY POLICY MEASURES ON THE ECONOMIC GROWTH IN KENYA

Abstract

The study examined the effects of monetary policy measures on the economic growth in Kenya. This study considered gross domestic product growth rates as essential economic growth indicators. The effects of monetary policy variables; money supply, interest rates, exchange rates and cash reserve ratio on the economic growth in Kenya was studied. This study adopted descriptive research design. The study used both primary data collected using questionnaires and secondary data. The secondary data used was captured by the central bank of Kenya and the Kenya national bureau of statistics within a period of 7 years. The data was summarized and analyzed using SPSS version 20 and Eviews to produce inferential statistics using multiple regression analysis so as to determine the relationships between the dependent and independent variables. The findings of correlation and regression analysis revealed that money supply was positively and significantly related to economic growth. Interest rates and exchange rates were found to have a negative relationship with economic growth measured by GDP growth rate. The findings further revealed that cash reserve ratio had positive but insignificant relationship with economic growth. This study concludes that CBK must formulate and conduct monetary policy with the aim of keeping overall inflation within the targets. The study recommended that CBK should come up with policies that will ensure that interest rates and exchange rates are maintained at an optimal level that will enhance levels of domestic savings and private investment. 

Keywords: Monetary Policy, Interest Rates, Money Supply, Exchange Rates, Cash Reserve Ratio, GDP Growth