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The Central Bank of Kenya (CBK) has raised the base lending rate to 7.50 per cent citing elevated inflation risks due to increased global commodity prices and supply chain disruptions.
The apex bank has retained the rate at 7 per cent since April 2020 providing an accommodative stance to the economy which suffered disruptions from the Covid-19 pandemic.
“The Monetary Policy Committee noted the elevated risks to the inflation outlook and concluded that there was scope for a tightening of the monetary policy in order to further anchor inflation expectations,” CBK Governor, Patrick Njoroge said in a statement.
Overall inflation increased to 6.5 percent in April 2022 from 5.6 percent in March, mainly due to higher food and fuel prices, according to the Kenya National Bureau of Statistics (KNBS).
Food inflation rose to 12.1 percent in April from 9.9 percent in March, largely on account of vegetable prices due to seasonal factors, and the impact of global supply chain disruptions on cooking oil prices.
Fuel inflation increased to 8.5 percent from 5.8 percent driven by the rise in international oil prices.
“The global economic outlook has become more uncertain, reflecting the impact of the ongoing Russia-Ukraine conflict, uncertainty about the required policy responses in the advanced economies, effects of Covid-19 containment measures in China, and persistent supply chain disruptions,” said Njoroge.
The Committee noted the adverse impact of the ongoing Russia-Ukraine conflict and other global disruptions on the Kenyan economy through increases in commodity prices particularly fuel, wheat, edible oils, and fertilizer.
The three surveys conducted ahead of the MPC meeting–Private Sector Market Perceptions Survey, CEOs Survey, and the Survey of Hotels–revealed continued optimism about business activity and economic growth prospects for 2022.
The optimism was attributed to continued post Covid-19 recovery, improving employment conditions, easing of international travel restrictions, and increased government infrastructure spending.
Nevertheless, respondents remained concerned about rising inflation, the impact of the Russia-Ukraine conflict on commodity prices, supply chain disruptions, and increased political activity.
Exports of goods have remained strong, growing by 11.1 percent in the 12 months to April 2022 compared to a similar period in 2021.
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 14.1 percent in April 2022, compared to 14.0 percent in February.
Growth in private sector credit increased to 11.5 percent in April 2022, from 9.1 percent in February
“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,” said Njoroge.
He added that the committee will meet again in July 2022, but remains ready to re-convene earlier if necessary.
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