Kenya's central bank (CBK) on Wednesday retained the benchmark lending rate known as Central Bank Rate (CBR) rate at 8.5 percent, saying there were no demand driven threats to inflation.

The CBK's Monetary Policy Committee (MPC) which met in Nairobi review market developments and the outcomes of its previous monetary policy decisions said it will continue to monitor any emergent risks from the external and domestic economies that may impact on price stability.

"Recent developments in the global and domestic foreign exchange markets have triggered inflationary expectations and present a threat to the price stability objective of the CBK," said a statement issued after the meeting.

MPC which is the CBK's top monetary policy organ said it will thus pursue the current tightening bias stance in the money market through the monetary policy operations in order to anchor inflationary expectations.

The Committee noted that despite upward pressure from food prices attributed mainly to delayed rainfall, overall inflation remained within the government target range in March and April.

Overall month-on-month inflation rose from 6.31 percent in March to 7.08 percent in April. The month-on-month food inflation rose significantly from 10.96 percent to 13.42 percent.

The month-on-month non-food-non-fuel inflation rose slightly from 3.16 percent to 3.53 percent in the period.

The key monetary aggregates including the broad money supply and the credit growth to the private sector were within their respective non-inflationary targets, it said.

According to MPC, the exchange rate of the local currency against the U.S. dollar came under pressure on account of a stronger dollar in the global currency markets and an enhanced, but seasonal, demand for foreign exchange by the local corporate sector largely associated with dividend and profit remittances.

"The Kenya shilling has displayed relatively less volatility since the start of 2015 compared with other major international and regional currencies," CBK said.

The MPC said the government domestic borrowing programme for the Fiscal Year 2014/15 is consistent with the monetary policy objectives. Specifically, it noted that domestic borrowing has not crowded-out private sector borrowing.

CBK's latest data and stress tests show that the banking sector remains strong as the CBK is working with stakeholders in the banking sector to implement measures aimed at enhancing transparency in the pricing of credit.

Updated data from all commercial and microfinance banks show that new and existing loans amounting to 9 billion dollars had been converted to the Kenya Banks' Reference Rate (KBRR) framework by end of April up from a revised level of 7.5 billion dollars by end of January.

Commercial banks' average lending rates declined gradually from 16.91 percent in July 2014 to 15.46 percent in March while the average deposit rate rose slightly from 6.59 percent to 6.63 percent over the period.

According to MPC, the average interest rate spread declined from 10.33 percent to 8.82 percent during the period. This trend, it said, is expected to continue as more loans are issued under the KBRR framework.

The latest data from the Kenya National Bureau of Statistics showed that overall real GDP growth was 5.1 percent in the fourth quarter of 2014, and the contribution of the financial and insurance sector remained strong.

The MPC Market Perception Survey conducted in April 2015 showed that a majority of the private sector firms remained optimistic for an improved business environment and stronger growth in 2015.