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Kenya Monetary Policy September 2022

Kenya: Central Bank surprises markets by delivering largest hike in over seven years in September

At its 29 September meeting, the Monetary Policy Committee (MPC) of the Central Bank of Kenya resumed its tightening cycle and delivered a 75 basis point hike. As such, the Central Bank Rate was increased to 8.25%. The move followed July’s hold and marked the second hike since May 2022. The decision to raise rates was largely expected by markets, but the size of the increase took them by surprise; they had priced in a 50 basis point hike. The rate hike was the largest since July 2015.

The MPC aimed to further anchor inflation expectations amid the continued acceleration of inflation in August to 8.5% (July: 8.3%), as price pressures for both food and fuel continued to accelerate. Furthermore, the Bank noted that it expects inflation to remain elevated, partially due to the withdrawal of some of the government’s fiscal support, new tax measures and external price pressures. Meanwhile, with regards to activity, available data hints that the economy performed well in Q2, giving the Bank more room for the hike. Additionally, expectations are for the economy to be resilient in H2, especially after an improvement in activity following the resolution of post-election uncertainty.

In its communiqué, the MPC did not include any new forward guidance. 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 November, but the Bank hinted it could meet earlier if conditions warrant.

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