The Central Bank of Kenya (CBK) on Monday raised its key lending rate by one percentage point to 10.5 percent, spelling a potential rise in the cost of loans.
The Monetary Policy Committee (MPC) noted that sustained inflationary pressures, increased risks to the inflation outlook, elevated global risks and their potential impact on the domestic economy call for tightening of the monetary policy.
Inflation for the month of May increased marginally by 10 basis points to eight (8) percent, a rise from the 10-month low of 7.9 per cent recorded in the month of April.
The rise was driven by fuel, food which increased to 10.2 percent, and non-food non-fuel (NFNF) prices.
“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 9.50 percent to 10.5 percent in order to further anchor inflation expectations,” CBK said in their latest MPC brief.
CBK noted that 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 further actions.
The MPC brief was Kamau Thugge’s first as CBK governor amid rising inflation and a weakening shilling.
The weak shilling has triggered fears of a fresh round of inflationary pressure, after hitting an all time low of Sh14o against the greenback.
CBK’s inflation-targeting Monetary Policy Committee (MPC) said that while the economy shows strong resilience, shocks from external markets could lead to a spike in consumer goods prices if the liquidity is not tightened.
“The global economic outlook remains uncertain, reflecting continued concerns about financial sector stability in the advanced economies, continuing geopolitical tensions particularly the ongoing war in Ukraine, and the pace of monetary policy tightening in the advanced economies,” CBK said in the brief
Central bankers around the world are increasing lending rates sharply as they try to rein the rising cost of living.
Additionally, headline inflation rates in advanced economies have been easing, but have remained above the respective targets with persistent core inflationary pressures. Commodity prices in the global markets, particularly of oil and food, continue to ease.
