The Monetary Policy Committee of the Central Bank of Kenya has adjusted the base lending rate from 12.5% to 13%.
As a result, credit will now be more expensive by a similar margin moving forward. The MPC attributed this change to factors such as inflation and exchange rate fluctuations.
“The proposed action will ensure that inflationary expectations remain anchored while setting inflation on a firm downward path towards the 5 per cent mid-point of the target range, as well as addressing residual pressures on the exchange rate. The MPC therefore decided to raise the Central Bank Rate from 12.50 per cent to 13 per cent,” Kamau Thugge’s Monetary Policy Committee (MPC) said.
Ahead of the MPC meeting, the Kenya Bankers Association (KBA) had urged the CBK to maintain the current 12.50 per cent rate to help ease the inflationary pressure.
“Easing inflationary pressure calls for a hold on the CBR to allow its recent adjustments to be fully transmitted through the market and protect fragile economic activity,” KBA said in a statement.
However, NCBA Bank noted that MPC’s prior decisions had succeeded ‘quite remarkably’ in the operating target: keeping the interbank rate firmly within the corridor, “we see merit in further monetary policy tightening by about 100–200 basis points.”
According to the NCBA, in Q3 2023, real GDP growth reached 5.9%, which exceeded the MPC’s estimate of 5.6%, indicating the country’s economy is performing better than expected.
In addition, the Global S&P headline PMI increased from 45.8 in November to 49.8 in January 2024. This suggests that the economy is still expanding and moving toward its long-term growth rate. As a result, there is less pressure on the MPC to be overly concerned about growth.
“Furthermore, on the external sector, despite the divergence in growth forecast by various key institutions, the consensus seems to point towards a better than earlier forecast economic growth rate in 2024,” said the NCBA.
