Recently, the Kenyan central banking’s monetary policy committee announced that it raised the central bank rate 75 basis points to 7.5% from 8.25%. The committee justifies its action by citing rising inflationary pressures, increased risks globally, and their potential impact on the country’s economy.
Rising Inflationary Pressures
The Central Bank of Kenya’s monetary policy committee (MPC), announced that it had approved an increase in the central bank rate (CBR), from 7.50 percent (previously 8.25%) to its current meeting. Patrick Njoroge (central bank governor) is the chair of the MPC. He approved an interest rate adjustment in order to protect Kenya from imploding economies worldwide.
The upward adjustment of CBR seemed to indicate that the Kenyan central banks would follow the lead of the Central Bank of Nigeria, which increased its monetary rate by 150 basis point. However, unlike the CBN, which hiked interest rates after seeing its inflation rate jump from 17.01% in July to 20.52% in August, the Kenyan MPC took the step to increase the CBR by 75 basis points even when the East African nation’s inflation rate only went up by 0.2% from 8.3% in July to 8.5% in August.
The MPC justifies its decision by citing rising inflationary pressures, increased risks globally, and their potential impact on the country’s economy. In a statement, the MPC revealed it took the step after observing there was “scope for a tightening of the monetary policy to further anchor inflation expectations.”
While Kenya, just like its African peers, is facing significant global uncertainties, the findings of two studies — a CEO survey and a Private Sector Market Perceptions Survey — appear to suggest that there is “stronger optimism about business activity and economic growth prospects for 2022.”
The CBK said that it could be required to continue taking steps if the circumstances demand.
“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. The Committee will meet again in November 2022 but remains ready to re-convene earlier if necessary,” the statement said.
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