CBK right to raise cost of loans amid inflation


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

The monetary authorities are right to take steps that will rein in inflation — arguably the biggest challenge facing the country at the moment.

The cost of living measure rose to 9.6 per cent last month, reflecting the impact of a surge in the prices of various goods and services, including food, fuel and electricity.

The price escalation of a number of commodities has different root causes but too much money chasing a few goods can further exacerbate the problem.

The Central Bank of Kenya (CBK) in its latest monetary policy committee meeting responded to the rising prices by raising the cost of money.

The institution, whose key mandates include promoting price stability, raised the reference Central Bank Rate (CBR) to a new high of 8.75 per cent from the previous 8.25 per cent.

The decision should influence short-term interest rates, making it more expensive to borrow cash for consumption or investment.

Non-essential spending, in particular, is expected to slow down as the cost of borrowing goes up.

While higher rates will hit borrowers, it is expected that the monetary authorities will in the near future ease up once inflation cools down.