The monetary policy committee of the Kenyan central bank recently revealed it increased the central bank rate by 75 basis points from 7.5% to 8.25%. Justifying its decision to act, the committee cites growing inflationary pressures and increased global risks, as well as their likely impact on the domestic economy.
Growing Inflationary Pressures
Following its latest meeting, the monetary policy committee (MPC) of the Central Bank of Kenya (CBK) announced it approved increasing the central bank rate (CBR) from 7.50 percent to 8.25 percent. The MPC, which is chaired by the central bank governor Patrick Njoroge, approved the interest rate adjustment to shield Kenya from the imploding global economy.
With the upward adjustment of the CBR, the Kenyan central bank appeared to follow in the footsteps of the Central Bank of Nigeria which recently increased its monetary policy rate by 150 basis points. 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.
Justifying its decision, the MPC cites growing inflationary pressures and the increased global risks, as well as their likely impact on the domestic 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.”
In the meantime, the CBK warned it may be forced to take further steps should the situation demand it.
“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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