Central Bank of Kenya, moving to reduce pressure on the shilling, today increased its signal interest rate – known as the Central Bank Rate – by an unprecedented 150 basis points to 10%.
The move by the CBK Monetary Policy Committee (MPC) effectively sets the stage for higher interest rates on credit which is expected to slow down demand for dollars and thus help the shilling gain some power against the US dollar. The shilling has been trading at above 95 units to the dollar.
The Committee, which met today a month before its scheduled date, said even though the tightening bias stance adopted by the MPC and implemented through the CBK monetary operations had curtailed the rapid depreciation in the exchange rate, there was need for further tightening of liquidity in the market.
The MPC, chaired by deputy CBK Governor Haron Sirima, noted that the emerging aggregate demand pressures and the persistent volatility in the global foreign exchange markets coupled with the projected recovery in international oil prices have implications on inflationary expectations and the potential of trickling down the past exchange rate movements on consumer price inflation.
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“The MPC therefore decided to augment its tightening stance by raising the CBR by 150 basis points from 8.50 percent to 10.00 percent,” says the MPC. “The MPC will continue to monitor developments in the external and domestic economies and their implications on the risks to the overall price stability.”
The CBR has been at 8.5% since May 2013. The big rise in the Central Bank Rate (CBR) has also been done without a Central Bank Governor, after the exit of Prof Njuguna Ndung’u in March. The President has nominated Dr Patrick Ngugi who is yet to be vetted by Parliament before his appointment is confirmed.
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