The Central Bank of Kenya Increases its Base Lending Rate as Food Prices Surge

The Central Bank of Kenya has been forced to increase its lending rate from 7.0% to 7.5%.

Central Bank of Kenya CEO

As fuel and food prices rise, the Monetary Policy Committee (MPC) has announced that the Central Bank will be reviewing its base lending rate or policy rate for the first time since 2015.

The decision is a monetary response to the increasing inflation rate which increased by nearly 1% in the previous month. Kenya’s inflation rate had increased from 5.6% to 6.5% between March and April 2022.

On Monday, May 30, the Central Bank said that food and fuel prices in the country had increased due to a surge in global prices, Food inflation rate was the highest, experiencing a rise from 9.9% to 12.1% between March and April. On the other hand, fuel inflation was experienced at 9.5% in April, an increase from 5.8% in March.

The committee further indicated that the base lending rate increase was influenced by the global supply chain which called for tightening of the monetary policy.

In a statement released by the Monetary Policy Committee, the decision to increase base lending rate was made because the risks to inflation outlook was significant. Due to the prevailing circumstances globally, “there was scope for a tightening of the monetary policy in order to further anchor inflation expectations.”

“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 7.00 per cent to 7.50 per cent,” added the statement.

The CBK also noted that the current inflation, especially in food and fuel, has been exacerbated by the War in Ukraine, which has disrupted global supply chain and affected prices of wheat, oil, and fertilizer.

The Effects of Covid-19 also continues to bite as the positivity rate is increasing.

The Parliament of Kenya recently turned down a proposal to increase taxes on food products, yet prices are still increasing. A 2KG packet of maize flour in the country currently sells at KSH165, increasing from KSH155 from the previous month. Wheat flour has also increased from KSH185 to KSH195.

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