The cost of loans is likely to go up following a decision by the Monetary Policy Committee (MPC) to revise upwards Central Bank Rate from 10.50 per cent to 12.50 per cent.
- •According to the Committee, the increase would address the pressures on the exchange rate and mitigate the second-round effects including from global prices.
- •The MPC noted that exchange rate depreciation continues to exert upward pressure on domestic prices, thereby increasing the cost of living and reducing purchasing power.
- •Of the overall inflation of 6.8 per cent in November 2023, the exchange rate depreciation contributed about 3.0 percantage point.
Additionally, the committee noted that public sector external debt service has risen, thereby offsetting some of the gains made towards the government’s strong fiscal consolidation. Further the continued weakening of the exchange rate is contributing to a significant increase in the Kenya Shilling value of foreign currency denominated debt.
“This will ensure that inflationary expectations remain anchored, while setting inflation on a firm downward path towards the 5 per cent mid-point target range,” noted Kamau Thugge, Chairman, Monetary Policy Committee.
“We will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to further tighten monetary policy as necessary to ensure price and exchange rate stability are achieved,” said Thugge.
The CEOs Survey and Market Perceptions Survey which were conducted ahead of the MPC meeting revealed tempered optimism about business activity for the next 12 months.
- •Respondents expressed concern about weakened consumer demand, and increased costs of doing business attributed to the weakening of the Kenya Shilling, taxation, and higher energy costs.
- •Nonetheless, respondents remained optimistic that economic growth would remain resilient in 2023 and improve in 2024, supported by increased agricultural production.
- •The MPC decision comes against a backdrop of continued global uncertainties, volatility in international oil prices, a weak global growth outlook, and escalation of geopolitical tensions.
