The Central Bank of Kenya (CBK) has edged up the benchmark rate by half a percentage point from 8.25 percent to 8.75 percent as the watchdog tightens the fiscal policy to fight runaway inflation which has yet to show signs of abating.
Overall inflation hit 9.6 percent last month from 9.2 percent in September with food and fuel costs being the main drivers.
Compared to October last year, food prices shot up 15.8 percent on account of adverse weather conditions which weighed on maize and milk production, while global supply chain disruptions negatively impacted the prices of wheat and edible oils.
Fuel prices jumped 12.6 percent relative to October 2021as the new government continues to scale down the fuel subsidy.
“The [Monetary Policy Committee] noted 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 monetary policy in order to anchor inflation expectations.
“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 8.25 percent to 8.75 percent,” said the CBK.
This is the third rate hike implemented by the CBK this year following 50 and 75 basis points increments in May and September respectively, despite the economy posting significant month-on-month upticks in inflation through the year thus far.
The financial regulator appears to revise the CBR northwards at much shorter intervals than before, in light of augmented global uncertainties such as volatile financial markets, the strength of the US dollar against other world currencies, geopolitical strife as in the Russia-Ukraine conflict as well as pandemic-related disruptions in China.
“The recently released GDP data for the second quarter of 2022 indicates continued strong performance of the Kenya economy with real GDP growing by 5.2 percent. This performance reflects robust activity in transport and storage, wholesale and retail trade, information and communication, real estate, financial and insurance,” said the CBK.
Commodities exports in the year to September have recorded a stellar 14 percent growth in comparison with the 12 months to September 2021, with earnings from tea increasing by 15.9 percent as demand from the traditional market rebounds.
Goods shipped into the country—mainly oil and intermediate goods—in the same period increased by 18 percent, growing by more than 5 percentage points compared to a similar period last year.
Additionally, diaspora remittances totaled US$4 billion (Kes489.6 billion) in the year to October, which is 11 percent compared to a similar period in 2021.