Expensive Loans Loom as CBK Raised Lending Rate

The Central Bank of Kenya (CBK) increased its benchmark lending rate by one percentage point on Monday, bringing it to 10.5 percent, potentially raising the cost of borrowing.

The Monetary Policy Committee (MPC) underlined that persistent inflationary pressures, higher global uncertainties, and risks to the inflation outlook, as well as their potential effects on the local economy, necessitate tightening of monetary policy.

May saw a little uptick in inflation of 10 basis points to eight percent, up from the 10-month low of 7.9 percent registered in April.

“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 9.50 percent to 10.5 percent in order to further anchor inflation expectations,” CBK said in their latest MPC brief.

CBK stated that the Committee is prepared to take additional steps and would be closely monitoring the effects of the policy changes as well as changes in the national and international economies.

Kamau Thugge’s first MPC brief as CBK governor coincided with growing inflation and a declining shilling.

After reaching an all-time low of Sh14 versus the US dollar, the weak shilling has raised concerns about new inflationary pressure.

Although the economy has shown considerable resilience, shocks from external markets could cause a jump in consumer goods prices if the liquidity is not reduced, according to CBK’s inflation-targeting Monetary Policy Committee (MPC).

“The 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 the brief.

In an effort to contain the global rise in living costs, central bankers are sharply raising lending rates.

Additionally, core inflationary pressures have persisted despite falling headline inflation rates in advanced nations, which have stayed above their respective targets. Oil and food prices in particular are continuing to decline on the international markets for commodities.