The Central Bank of Kenya (CBK) has increased its policy lending rate by half a percentage point in a bid to combat the current inflation situation and stabilize the Kenyan Shilling. The decision which was implemented on Monday the 30th of May 2022 has seen the Central Bank Rate (CBR) rise to 7.50 percent which accurately meets the expectations of a number of analysts who believed that the policy rate would increase further in the next couple of months as the country continues to battle the inflation pressures brought on as a result of the increasing prices of Oil, as well as the negative economic impacts from the still ongoing Russia and Ukraine war that has also affected food supplies.
Inflation is the measure of the yearly changes in the cost of living of a country. According to the Kenya National Bureau of Statistics (KNBS) Kenya’s inflation reached 6.47 percent in April of 2022. This is higher than the 5.56 percent that was the case the month before; March of 2022.
6.47 percent is the highest it has been since September of 2021 when it hit 6.91 percent.
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The Central Bank of Kenya (CBK)’s Monetary Policy Committee (MPC) targeted at inflation, made it known that although the country’s economy shows a strong elasticity the weakened Kenyan Shilling, impacts of food shortages, as well as imported inflation in the shape of rising food costs could however, result in an increase in the prices of consumer goods if the current liquidity is not strengthened or tightened.
According to the chairman of the Central Bank of Kenya (CBK)’s Monetary Policy Committee (MPC) and the Governor of the Central Bank of Kenya (CBK); Patrick Njoroge, “The Committee noted the elevated risks to the inflation outlook due to increased global commodity prices and supply chain disruptions, and concluded that there was scope for a tightening of the monetary policy in order to further anchor inflation expectations.”
The chairman of the Central Bank of Kenya (CBK)’s Monetary Policy Committee (MPC) and the Governor of the Central Bank of Kenya (CBK); Patrick Njoroge added that, “In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 7.00 percent to 7.50 percent.”
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On Monday the 30th of May 2022 the Kenyan Shilling traded at 116.71 Kenyan Shillings which signified a new record low against the United States Dollar. The occurrence has led to fears that the costs of importing electronics, second hand clothes, cars and farm inputs could go even higher alongside the cost of electricity at a time when there is a shortage of the United States Dollar.
The weakened Kenyan Shilling has also brought about worries that a new round of inflation pressure could occur at a time when the Kenyan government has already had to provide fuel subsidies so as to prevent further worries.
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It is believed that the tightening of liquidity could have a negative impact on the possibility of companies and individuals gaining access to credit.
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