Kenya raises interest rate to 7.5% in May 2022, first time in 7 years

For the first time in almost seven years, Kenya has raised its interest rate to curb inflation expectations as concerns about commodity prices build.

In a Bloomberg report, the central bank governor, Patrick Njoroge said the monetary policy committee increased the rate by 50 basis points to 7.5%, the first increase since July 2015.

The bank believes that the rate increase may help to prop the local currency expectation and anchor inflation expectations though may slow down economic growth.

What the Central Bank of Kenya is saying

The central bank of Kenya said the decision was taken because of elevated risks to the inflation outlook due to increased global commodity prices and supply chain disruptions.

  • He said, “Three surveys conducted ahead of the MPC meeting showed respondents remained concerned about rising inflation, the impact of the war in Ukraine on commodity prices, supply chain disruptions, and increased political activity,
  • “Elevated credit risk and mounting price pressures due to a prolonged drought in parts of the East African country, a shilling that’s trading at record lows and choked supply chains prompted a bankers’ lobby group last week to urge the central bank to hike the key rate.
  • “Inflation quickened to 6.5% in April, edging closer to the central bank’s 2.5% to 7.5% target band. A separate Bloomberg survey of 10 economists project annual inflation will average 6.5% this year, compared with a previous forecast of 6.2%.”

Patrick stated that while the MPC sees an adverse impact of the ongoing war in Ukraine and other global disruptions on the economy, it expects it to remain resilient in 2022.

What you should know

  • Private sector credit increased from 9.1% in February to 11.5% in April with strongest credit growth observed in the transport and communication, manufacturing and trade industries.
  • In spite of increase seen in the building and construction, manufacturing, trade and transport and communication industries, gross loans stood at 14.1% in April, a brief changed from February.
  • Similarly, loan application and approvals remained strong, reflecting improved demand with increased economic activities.
  • The country’s foreign-exchange reserves rose to $8.2billion from $7.85 billion in March, equivalent to 4.86 months of import cover.

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