The much anticipated appreciation of the shilling might not lead to a drop in prices despite a decline in oil and steel on the world market.
Importers of oil and steel who rely on bank financing are paying higher interest rates after Central Bank increased its lending rate from 11 per cent to 16.5 per cent early this month.
The bank’s move, aimed at taming inflation and strengthen the shilling, has led to high interest rates that will push up prices.
Commercial banks and financial firms said the rising cost of credit could erode gains from Central Bank’s move to stabilise the shilling.
Renaissance Capital, a Nairobi based research and investment firm, said in a November 3 report titled “Risk to Credit Growth Rises, but Positive for Current Account Deficit” that credit-driven import trade will be dampened and increase the cost of imported goods.
“This is especially negative for sectors that are exposed to the credit boom story — particularly trade which is one of the biggest recipients of credit,” Renaissance Capital said.
For instance, the Energy Regulatory Commission this week increased fuel prices to protect oil firms against the rising cost of credit.
Protect oil marketers
The energy commission introduced 60 cents more on a litre of fuel. The new move, the commission said, will protect marketers. Mr Kennedy Butiko, a senior dealer at Bank of Africa, told our sister paper, Business Daily, that importers were paying up to 35 per cent interest on loans following Central Bank’s increase of its lending rate two weeks ago.
“The interbank rates have increased to above 30 per cent and it has become difficult for us to advance money,” Mr Butiko said.
