The Monetary Policy Committee of the central bank raised the base lending rate from 7.5 percent to 8.25 percent, citing increased inflationary pressures.
The modest 75 basis point increase effectively signals higher loan costs for Kenyan borrowers.
The move is also consistent with most analysts’ expectations for the MPC to take action to curb rising inflation.
“The Committee noted the sustained inflationary pressures, the elevated global risks and their potential impact on the domestic economy and concluded that there was scope for a tightening of the monetary policy in order to further anchor inflation expectations. In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 7.50 percent to 8.25 percent,” it said in a statement Thursday.
However, the tightening of liquidity is expected to make it more difficult for individuals and businesses to obtain credit.
Since May 30, 2022, the CBR has remained constant at 7.5 percent.
Kenyan consumers faced the steepest rise in living costs in more than five years in August, when inflation reached a 62-month high of 8.5 percent due to a failed maize flour subsidy, rising fuel costs, and a weakening shilling. Inflation is expected to rise further this month as the government raises the cost of petroleum and electricity.
Inflation was at its highest since June 2017, when it reached 9.21 percent in the run-up to the previous election cycle.
“Overall inflation is expected to remain elevated in the near term, due in part to the scaling down of the government price support measures, resulting in increases in fuel and electricity prices, the impact of tax measures in the FY 2022/23 Budget, and global inflationary pressures,” CBK said.
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