The Central Bank of Kenya(CBK) has raised the base lending rate further to 8.75 per cent from 8.25 per cent in a bid to tame runaway inflation in the economy amid elevated global risks.
The increase of 50 basis points signals a higher cost of loans for Kenyan borrowers who are currently grappling with a high cost of living.
“The Monetary Policy Committee noted the sustained inflationary pressures, the elevated global risks, and their potential impact on the domestic economy and concluded that there was scope for a further tightening of the monetary policy in order to anchor inflation expectations,” CBK Governor Patrick Njoroge.
Kenyans endured the sharpest rise in the cost of living in October when inflation rose to an all-time high of 9.6 per cent, attributed to the high cost of food, fuel, and housing.
CBK noted that food inflation rose to 15.8 per cent in October from 15.5 per cent in September, largely due to prices of maize and milk following reduced supply attributed to depressed rains and edible oils and wheat products due to the impact of international supply chain disruptions.
Further, fuel inflation increased to 12.6 per cent in October from 11.7 per cent in September, mainly due to the scaling down of the fuel subsidy, increases in electricity prices due to higher tariffs, and increases in transport costs.
On the positive end, CBK noted that inflation pressures are showing signs of abating in some major economies but remain elevated, mainly reflecting high energy prices and persistent supply chain challenges.
Two of the surveys conducted ahead of the MPC meeting—the CEOs Survey and Market Perceptions Survey—revealed sustained optimism about business activity and economic growth prospects for 2022 and 2023.
The optimism was attributed to increased economic activity following the conclusion of the elections, opportunities for growth in sectors such as ICT, and the Government’s renewed focus on MSMEs.
“Nevertheless, respondents remained concerned about reduced consumer spending, domestic inflation, and subdued agricultural performance due to depressed rainfall, as well as increased global risks including inflation, recession, and the continued war in Ukraine,” Patrick Njoroge.
The Survey of the Agriculture Sector conducted in the first half of the month revealed that prices of some key items moderated in November.
Additionally, respondents expect output for most agricultural products to increase in the next harvest on account of improved weather conditions and increased acreage.
Nevertheless, respondents identified transport costs due to high fuel prices, unpredictable weather conditions, and the cost of inputs such as seeds and fertilizers as major factors constraining agricultural production.
According to CBK, the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios.
The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.8 per cent in October 2022, compared to 14.2 per cent in August.
“Repayments and recoveries were noted in the building and construction, personal and household, and tourism, restaurant, and hotels sectors,” CBK said.
Growth in private sector credit increased to 13.3 per cent in October from 12.5 per cent in August 2022.
“The Committee will closely monitor the impact of the policy measures, as well as developments in
the global and domestic economy, and stands ready to take additional measures, as necessary,” Patrick Njoroge.
He noted that the Committee will meet again in January 2023 but remains ready to reconvene earlier if necessary.