The Central Bank of Kenya (CBK), through its top policy-making organ-the Monetary Policy Committee (MPC), has revised upwards the benchmark base lending rate from 9.50% to 10.50%.
This monetary tightening stance taken by the new CBK Governor Dr Kamau Thugge, is one of the Governor’s first moves as he settles down in office to deal with challenges inherited from his predecessor Dr Patrick Njoroge.
At its meeting held this Monday, ahead of the scheduled July meet, the MPC said the decision to hike the Central Bank Rate (CBR) was made against the rear mirror view that reflects global uncertainties, inflationary pressures, weak global growth prospects and ongoing geo-political conflicts as well as responses to measures adopted around the world to deal with these adverse conditions.
Kenya’s inflation rose to 8.0% in May from 7.9% in April 2023, pushed up mainly by a steep rise in the price of fuel and food items. The Government scrapped the fuel subsidies program while the price of electricity also increased, factors that are expected to keep inflation high in the coming months. Particularly, the prices of maize and sugar have shot through the roof, destabilizing the household budget of many poor Kenyans.
The MPC noted that with the ongoing war between Russia and Ukraine, the geopolitical conflict has ensured food and oil prices remain high, implicating serious damage to the local economic fabric.
CBK OUTLOOK FOR KENYA’S ECONOMIC PERFORMANCE
Kenya’s economy is expected to hit a rebound in the first half of 2023, due to increased activity in the services sector as well as a strong recovery in the agricultural sector due to fairly good rains.
An improvement in tea exports and performance in the manufacturing sector, according to CBK, has also been noted in the 12 months to May 2023 compared to a similar period in 2022. Imports to Kenya, made up of equipment needed for various infrastructure projects have also declined as most of the projects reach their completion.
Kenya’s forex reserves, which are now at US$ 7,379 Million or 4.07 months of import cover continue to adequately shield the local unit from any jitters in the local forex market.
The Banking sector recorded an increase in non-performing loans to gross loans, at a ratio of 14.9% in May 2023 from 14.6% in April 2023. The CBK said this rise in NPLs was particularly pronounced in manufacturing, trade, real estate as well as transport and communication sectors.
There was growth in private sector credit with manufacturing, transport and communication, real estate, trade and consumer durables, gobbling up most of the loans disbursed by banks.
The MPC noted the ongoing implementation of Kenya’s KSh 3.7 trillion budget for 2023/24, particularly the performance of tax revenue collection and policy measures that continue to reinforce fiscal consolidation, are satisfactory. The Washington-based International Monetary Fund(IMF) has been pushing for the Nairobi administration to ensure fiscal consolidation in most of their discussions with Kenya.
The MPC is expected to hold its next meeting again next month, barely three weeks after the May 29th 2023 meeting, at which the CBK retained the benchmark rate at 9.50%
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