The Central Bank of Kenya (CBK) raised the benchmark lending rate by 0.75 basis points to 8.25 Thursday for fear of looming inflation.
The move is meant to slam breaks on inflation that soared to its record 8.3 percent from 7.9 in June – the highest reading since 2017.
“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 the fuel and electricity prices, the impact of tax measures in the 2022/23 budget and global inflationary pressures,” the CBK said in its post-Monetary Policy Committee press release.
This will see demand for goods and services slowed to ease pressure on the shilling that has continued to weaken against the dollar.
The cost of loans in the credit market is expected to jump sharply to the disadvantage of the government and Kenyans at large.
According to data by CBK, the average commercial bank lending rate moved from 12.22 percent in May to 12.35 percent in July this year.
CBK move is not exceptional in the global market since most central banks, save for Japan and China have resolved to rising interest rate on the back of high cost of commodity goods.
US’ interest rate surged to 14-year all-time high when the Federal Reserve adjusted it by three quarters to a percentage point (0.75 percent) to 3.25 percent Wednesday.
The rate hikes in the case of the United States, will burn out the emerging economies – said CBK Governor Dr. Patrick Njoroge.
“Policy makers in developed economies to raise interest rates have implications on financial markets. Right now financial markets have frozen us out and it is difficult for us to maintain our relationships in the financial markets,” said Dr. Njoroge who spoke to Bloomberg’s reporter Jeniffer Zabasajja.
African countries including Kenya are experiencing serious levels of economic distress to maintain relationship in the financial markets like borrowing on manageable terms as policy makers in the developed economies resolve to rapidly raise interest rates.