The Central Bank of Kenya raised interest rates by half a percentage point on Monday to curb rising inflation and stabilize the shilling.
The central bank rate (CBR) hike to 7.50 percent was in line with the Expectations of most analysts, who said they expect interest rates to rise further in the coming months as the country fends off inflationary pressures caused by rising oil prices and the economic fallout from the Russian-Ukrainian attack on food supplies .
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Inflation – a measure of annual changes in the cost of living – rose in April fell from 5.56 percent to 6.47 percent in the previous month, the Kenya National Bureau of Statistics reported last month.
This was the fastest pace since last September, when it was 6.91 percent.
CBKs on inflation The Currency Policy Committee (MPC) said that while the economy is showing strong resilience, shocks from food shortages, a weak shilling and imported inflation in the form of rising food prices could lead to a rise in consumer goods prices if liquidity is not tightened.
“Noting heightened risks to the inflation outlook from higher global commodity prices and supply chain disruptions, the Committee concluded that there is scope for monetary tightening to further anchor inflation expectations” , MPC Chairman and CBK Governor Patrick Njoroge said after his meeting.
< p>“In light of these developments, the MPC decided to raise the policy rate of the central bank (CBR) from 7.00 percent to 7.50 percent. “
The shilling traded at 116.71 on Monday, hitting a new record low for the dollar and already is paving the way for costly imported commodities such as cars, electronics, farm supplies and second-hand clothing, and electricity amid a US currency shortage.
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The weakening of the shilling has sparked fears of a new round of inflationary pressures, a political headache for the government, which was recently forced to offer fuel subsidies to defuse social tensions.
The tightening of liquidity is a problem, however. likely to have a negative impact on access to credit for individuals and businesses.