Kenya’s central bank raised its benchmark interest rate by 2 percentage points on Tuesday to try to tame rising inflation in East Africa’s economic hub.
The Monetary Policy Committee announced it had decided to raise the Central Bank Rate from 10.5% to 12.5%, citing “persistent domestic inflationary pressures and a depreciating shilling.”
The rate increase is the latest move by the central bank to try to ease inflationary pressures by tightening monetary policy. inflation remained unchanged at 6.8% in November, sticking near the upper bound of the government’s target range.
Food inflation ticked down slightly to 7.6%, largely due to lower prices of key food items like maize and wheat flour, the bank said. But the costs of some vegetables climbed because of reduced supply.
“The risks to inflation are elevated in the near term, reflecting the impact of second-round effects” related to the increasing costs of fuel and the depreciating shilling, the bank said in a statement.
The currency’s weaker performance against the dollar also has pushed up public debt service, offsetting gains made in the government’s strong fiscal consolidation, the bank said.
It expressed optimism about strong economic growth in 2023 and 2024 supported by rebounding agricultural production, a resilient services sector and government measures meant to boost activity.
The bank is “ready to further tighten monetary policy as necessary,” chairman Kamau Thugge said, to ensure price stability.