- Last month, the country's inflation rose to a 7-year high of 9.6 per cent from 9.2 per cent the previous month.
The short-term borrowing is now in the range of four per cent, the highest level since January 2008.
Image: FILE
The shilling hit an all-time high of Sh121.50 against the dollar at the opening of the market on Thursday, a day after the US raised its fed rate for the fourth time in a year.
The Google Currency Trader tracked the Kenyan currency at Sh121.51 few moments after 9am before settling at 121.50 by the time of going to press.
The weakening of shilling has had a direct impact on the cost of living in the country, as traders push the the rising import bill to consumers.
Last month, the country's inflation rose to a 7-year high of 9.6 per cent from 9.2 per cent the previous month.
The Federal Reserve on Wednesday approved a three-quarter point interest rate increase and signalled a potential change in how it will approach monetary policy to bring down inflation.
The short-term borrowing is now in the range of four per cent, the highest level since January 2008.
The move continued the most aggressive pace of monetary policy tightening since the early 1980s, the last time inflation ran this high.
Along with anticipating the rate hike, markets also had been looking for language indicating that this could be the last 0.75-point, or 75 basis point, move.
Apex banks globally use the interest rates as either a gas pedal or a brake on the economy when needed.
They set the short-term borrowing rate for commercial banks, and the banks pass it along to consumers and businesses.
With inflation running high, they can raise interest rates and use that to pump the brakes on the economy in an effort to get inflation under control.
In September, the apex bank in Kenya raised the base lending rate by 75 basis points to 8.25 per cent to calm inflation that has been rising since February.
By lifting the benchmark lending rate, the CBK seeks to stamp on inflation by going after demand while at the same time incentivising investments in Shilling denominated assets after significant portfolio outflows triggered by interest hikes in developed economies.
Various international finance and trade agencies have warned of impending recession on aggressive monetary policies in developed nations.
Last month, United Nations Conference on Trade and Development (UNCTAD) said ff monetary tightening in the advanced economies continues over the coming year … a global recession is more likely.