CBK announces sharp rise in interest rate to fight inflation

The Central Bank of Kenya. PHOTO | DENNIS ONSONGO | NMG

The Central Bank of Kenya (CBK) on Thursday raised the key lending rate by 75 basis points to 8.25 percent, matching the Federal Reserve hike last week as central banks struggle to tame inflation.

The Monetary Policy Committee (MPC) increased the benchmark rate saying the rising inflation, global risks and their impact on the domestic economy call for tightening of the monetary policy.

The inflation — a measure of annual changes in the cost of living— hit 8.5 percent in August from 8.3 percent in July, the Kenya National Bureau of Statistics reported last month.

The MPC last raised the rate by 50 basis points at its sitting in May to stem rising inflation and stabilise the shilling.

“The Committee noted the sustained inflationary pressures, the elevated global risks and their potential impact on the domestic economy and concluded that there was scope for a tightening of the monetary policy in order to further anchor inflation expectations,” CBK said in a statement on Thursday.

“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 7.50 percent to 8.25 percent.”

Central bankers around the world are increasing lending rates sharply as they try to rein the rising cost of living.

Last week the US Federal Reserve hiked interest rates by another three-quarter of a percentage point, the third time it was doing so in a row.

This week, a majority of Bank of England's nine-member MPC increased the base rate by 0.5 percentage points to 2.25 percent.

CBK’s inflation-targeting Monetary Policy Committee (MPC) said that while the economy shows strong resilience, shocks from food shortages, a weak shilling, and imported inflation in the form of surging food prices could lead to a spike in consumer goods prices if the liquidity is not tightened.

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