The Central Bank of Kenya (CBK) has raised the benchmark rate by 50 basis points to 13% as the monetary authority grapples with high inflation and foreign exchange pressures.
- This move indicates the rise in the cost of credit from banks who will now consider other more lucrative options rather than lend to the private sector.
- The CBK through MPC reckons that this decision to further hike the CBR has been motivated by the need to check on inflation and exchange rate pressures.
- Analysts warn that the decision to hike the benchmark rate will result in a high cost of financing and a spike in Non-performing loans.
The Monetary Policy Committee (MPC) met on February 6th, 2024 at a time when inflation has risen from 6.6% in December 2023 to 6.9% in January 2024. This hike in the cost of living has been spiked by the rise in non-vegetable food items, fuel, and electricity as well as the Kenya Shilling depreciation against the US Dollar and other hard currencies.
According to the latest Survey of the Agriculture sector, undertaken by the Central Bank of Kenya, inflation is expected to rise even further in the next three months on account of a weakening Kenya Shilling which has spooked import prices.
Data from CBK also show that Kenya’s economy grew by 5.9% in Q3 2023 compared to 4.3% over a similar quarter in 2022.
- This is attributed to a strong rebound in the agriculture sector, services as well as robust improvements in food, financial services, accommodation, insurance, ICT, and real estate.
- According to CBK, its foreign exchange reserves is currently at US$ 7,101 million of 3.8 months of import cover which the monetary authority considers to be an adequate buffer against any short-term shocks in the forex market.
- In the banking sector, there is a notable reduction in non-performing loans especially in the energy sector, water, manufacturing, agriculture, building and construction, transport, and communication sectors.
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