Kenya Central Bank Rate (%, eop)

Policy Interest Rate in Kenya

Central Bank resumes hiking with a 75 basis points increase

At its 29 March meeting, the Monetary Policy Committee (MPC) of the Central Bank of Kenya decided to increase the Central Bank Rate by 75 basis points to 9.50%. The move marked a resumption of the hiking cycle after January’s decision to hold and was not in line with the 25 basis point hike anticipated by markets.

The decision was motivated by the desire to anchor inflation and inflation expectations. The Bank expects inflation to remain elevated in the near term due to higher electricity tariffs, notwithstanding a moderation in food inflation as a result of recent rains. The Bank also judged the economy to have performed well in Q1 and likely to remain resilient this year due to the dynamism of the service sector and an anticipated recovery in agriculture, providing the leeway to hike.

As in previous meetings, the communiqué was devoid of explicit forward guidance. The Bank reiterated that it would “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 for May 2023, but the Bank said it could meet earlier if conditions warrant.

Regarding the impact on the currency, EIU analysts commented:

“The interest-rate rise to 9.50% means the real rate is now positive for the first time since May 2022, although the shilling will remain vulnerable given ongoing foreign-exchange shortages. We expect monetary tightening and pending new foreign-exchange inflows to help to ease price growth and support the shilling in the second quarter of 2023.”