The cost of borrowing is expected to go up after the Monetary Policy Committee (MPC) raised Central Bank rate by 75 basis points to 9.5 percent.
This is a rise from 8.75 per cent that had been retained in the previous MPC meeting, meaning Kenyans will have to dig deeper into their pockets to repay loans.
On Wednesday 29, the Committee said that it noted the sustained inflationary pressures, the elevated global risks and their potential impact on the domestic economy prompting the need to tighten lending rate.
Kenya’s annual inflation rate for the month of February increased to 9.2 per cent maintaining a breach of the ceiling of the central bank’s 2.5 per cent to 7.5 per cent target range for nine months.
“There was scope for a further tightening of the monetary policy in order to anchor inflation expectations. In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 8.75 percent to 9.50 percent,” MPC Chairman Patrick Njoroge said in a statement.
The depreciating shilling earlier in the week prompted the central bank to revive the inter-bank currency market.
The shilling has depreciated in recent times closing in at Sh131.77 against the dollar
The currency has weakened amid diminishing foreign-exchange reserves, a deteriorating balance of payments, and rising global interest rates that have raised the cost of debt servicing.
The MPC said that uncertainties in the global economic outlook have increased, reflecting concerns about financial sector stability in the advanced economies, continuing geopolitical tensions and the pace of monetary policy tightening in the advanced economies.
Despite the economy experiencing liquidity challenges CBK maintained that foreign exchange reserves, which currently stand at $6.5 billion (3.62 months of import cover), continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market.
“The Committee will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures, as necessary,” added Njoroge added.
However, raising the rate will have an impact on economic growth which has been projected to expand by 5.1 per cent this year, compared with 5.3 per cent in 2022, according to International Monetary Fund (IMF) estimates.
