Nairobi — Kenya’s central bank hiked its benchmark lending rate (KECBIR=ECI) by 2 percentage points to 12.5% on Tuesday, saying exchange rate depreciation was spurring price pressures and public sector external debt service had risen.
The decision was the first time the Central Bank of Kenya has changed the rate since June when it raised it by 1 percentage point. In August and October, it kept it unchanged.
“There is need to adjust the monetary policy stance to address the pressures on the exchange rate and mitigate second round effects including from global prices,” the central bank’s Monetary Policy Committee (MPC) said in a statement.
“This will ensure that inflationary expectations remain anchored, while setting inflation on a firm downward path towards the 5.0 percent mid-point of the target range.”
Inflation (KECPI=ECI) eased slightly to 6.8% year-on-year in November from 6.9% in October, with transport, housing and utilities, and food major contributors.
The central bank noted on Tuesday that exchange rate depreciation had contributed about 3.0 percentage points to November’s 6.8% reading.
The shilling is down more than 19% against the dollar this year, having struck repeated all-time lows along the way.
“The MPC … stands ready to further tighten monetary policy as necessary to ensure price and exchange rate stability are achieved,” the central bank’s statement said.
The MPC will meet again in February 2024.
*George Obulutsa, editing: Alexander Winning – Reuters
