Businesses are bracing for higher financing costs after CBK raised the key policy rate to 10.5% from 9.5% on Monday, citing slightly elevated inflation and global conditions.
The new CBK leadership noted that there is scope for further tightening of monetary policy.
The new taxation measures, and continued depreciation of the Kenya shilling are likely to maintain inflationary pressure on the key components of food and fuel. As a result, further rate increases appear more than likely.
As rates rise, micro and small businesses will be particularly hit hard, considering that Microfinance Banks were already charging 20-22% interest. Already, non-performing loans are rising in manufacturing, trade, real estate, transport and communication sectors.