Central Bank of Kenya Hikes Key Rate to 8.25% to Combat Inflation
The Central Bank of Kenya on Thursday raised its benchmark rate by 75 basis points to 8.25%, an aggressive measure to tackle rising prices against the backdrop of global risks.
The Monetary Policy Committee (MPC) said the rising inflation, global risks and their impact on the domestic economy called for tightening of the monetary policy.
Since June 2022, Kenya’s headline inflation has trended above the 7.50% upper band statutory target owing to
elevated food and fuel costs. The inflation hit 8.5% in August from 8.3% in July.
“The Committee noted the sustained inflationary pressures, the elevated global risks and their potential impact on the domestic economy and concluded that there was scope for a tightening of the monetary policy in order to further anchor inflation expectations,” CBK said in a statement on Thursday.
“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 7.50% to 8.25%.”
The move is in line with the expectations of most analysts who had projected action by the MPC to stem surging inflation. The tightening of liquidity is, however, expected to hurt access to credit for individuals and companies.
Last week, both the US Federal Reserve (US Fed) and Bank of England (BoE) hiked policy rates by 75bps and 50bps to the 3.00% – 3.25% range and 2.25% level respectively.
“There are however concerns around the pace and quantum of policy rate hikes given the direct negative impact on demand. Moreover, forecasting supply-driven shocks on inflation has increasingly become difficult at a time of heightened uncertainty and fragile sentiments,” NCBA Weekly Fixed Income Report – 26th September 2022.
“Aggressive monetary policy tightening, therefore, poses the risk of protracting the ongoing global economic slowdown, and in the base case scenario, deepening the looming recession.”