The Central Bank of Kenya’s Monetary Policy Committee (MPC) raised the base lending rate by 75 basis points to 9.5 per cent from 8.75 per cent.
The MPC said there was room for further tightening, which is expected to add upward pressure to loan payments linked to interbank rates due to sustained inflationary pressures.
In its topical note early in the week, Genghis Capital said the MPC would adopt a hawkish stance and hike the CBR by 25bps in the March meeting to anchor rising inflation expectations while supporting a healthy private sector credit growth momentum.
Headline inflation averaged 7.64 per cent in 2022 – above the CBK’s upper band target of 7.50 per cent. Inflation averaged 6.11 per cent in 2021 and 5.30 per cent in 2020.
In February 2023, however, inflation accelerated to 9.23%.
As a result, NCBA Market Research also noted that as long as price pressures remain elevated, they expected the MPC to raise the benchmark rate by 25 basis points.
“Consequently, the persistence of a restrictive monetary policy stance will likely sustain upward pressure on the yield curve,” said NCBA.
“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 per cent to 9.50 per cent,” MPC Chairman Patrick Njoroge said in an emailed statement.