Regulator announced a sharp rise in the base interest rates to fight inflation pressure
The Monetary Policy Committee (MPC) of Kenya’s Central Bank is set to raise the Central Bank Rate (CBR) from 9.5% to 10.5%, in response to persistent inflationary pressures and global uncertainties.
According to a statement signed by CBK governor Kamau Thugge, the decision was made during the MPC meeting held on June 26, 2023, where the committee reviewed the outcomes of previous measures implemented to mitigate economic impacts and financial disruptions.
Inflation in Kenya has been on the rise, reaching 8% in May 2023 compared to 7.9% in April due to higher prices of fuel, food, and non-food items. Food inflation stood at 10.2% in May, mainly due to a sharp rise in sugar prices. On the other hand, fuel inflation increased to 13.6%, attributed to the removal of the fuel subsidy and electricity price adjustments. Non-food and non-fuel inflation rose to 4.3%.
“Global economic outlook remains uncertain, reflecting continued concerns about financial sector stability in the advanced economies, continuing geopolitical tensions particularly the ongoing war in Ukraine, and the pace of monetary policy tightening in the advanced economies,” CBK said in a statement.
This change comes as inflation is expected to remain elevated in the near term, primarily due to recent increases in electricity prices and the removal of the fuel subsidy. A mini-survey conducted in the agriculture sector revealed that prices of key food items, particularly sugar and maize, remain high. The committee expressed concerns about global uncertainties, including financial sector stability in advanced economies, geopolitical tensions such as the ongoing war in Ukraine, and the pace of monetary policy tightening in those economies,” MPC said in a statement.
The committee noted that exports of goods have remained strong, with a growth rate of 5.5% in the 12 months to May 2023. Receipts from tea and manufactured goods exports also rose to 10.2% and 25.4%, respectively.
In light of the sustained inflationary pressures, increased risks to the inflation outlook, and elevated global risks, the MPC said that further tightening of monetary policy was necessary to anchor inflation expectations.
“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 also further action as necessary,” CBK Governor Kamau Thugge, said.
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