The Monetary Policy Committee of the Central Bank of Kenya recently raised the central bank rate 75 basis points from 7.5% to 8.25%. The committee justified this decision by citing rising inflationary pressures and increased global risks and their potential impact on the domestic economy.
Increased inflationary pressures
The Monetary Policy Committee (MPC) of the Central Bank of Kenya (CBK) announced after its latest meeting that it has approved an increase in the Central Bank Rate (CBR) from 7.50% to 8.25%. The MPC, chaired by Central Bank Governor Patrick Njoroge, approved the interest rate adjustment to protect Kenya from the collapsing global economy.
With the upward adjustment in the CBR, Kenya’s central bank appeared to be following in the footsteps of the Central Bank of Nigeria, which recently raised its monetary policy rate by 150 basis points. But unlike the CBN, which raised rates after inflation jumped from 17.01% in July to 20.52% in August, Kenya’s MPC took steps to raise the CBR by 75 basis points even as the East African nation’s inflation rate rose 0.2% from 8.3% in July to 8.5% in August.
The MPC justified its decision by citing rising inflationary pressures and increased global risks and their potential impact on the domestic economy.22} In astatementthe MPC said after expressing its view that “there is room to tighten monetary policy to further anchor inflation expectations.” It clarified that it had decided to take this step.
Although Kenya, like its African peers, faces significant global uncertainty, the results of two surveys, the CEO Survey and the Private Sector Market Perception Survey, seem to suggest that there is “stronger optimism about the prospects for business activity and economic growth in 2022.”
Meanwhile, CBK warned that it may be forced to take further steps if the situation requires it.
“The Committee will closely monitor the impact of the policy measures and developments in the global and domestic economy and is prepared to take additional measures if necessary. The Committee will meet again in November 2022, but is prepared to reconvene earlier if necessary,” the statement said.
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