Kenya: Central Bank surprises markets and delivers first rate hike in May
At its 30 May meeting, the Monetary Policy Committee (MPC) of the Central Bank of Kenya delivered the first rate hike since July 2015 and increased its Central Bank Rate by 50 basis points to 7.50%. The move, which took market analysts by surprise, came after the bank held fire for 13 consecutive meetings.
The decision was driven by the ongoing upward trend of inflation. The war in Ukraine has trickled down to the Kenyan economy through higher prices for wheat, fuel, fertilizer and food oils, which have bolstered food and fuel prices and fueled inflation in turn. Given upside risks to the inflation outlook, the Bank decided that a hike would help further anchor inflation expectations. Moreover, national accounts data for 2021 was released, showing a robust economic performance. The Kenyan economy rebounded with 7.5% growth in 2021, recovering from the pandemic-induced 0.3% contraction in 2020. This strong performance further cemented the Bank’s decision to hike rates.
In its communiqué, the MOC did not provide hints over future policy guidance. That said, the Bank reiterated that it 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”.
The next meeting is scheduled to take place in July, but the Bank hinted it could meet earlier if conditions warrant it.