CBK hikes lending rate to 6pc

March 22, 2011

, NAIROBI, Kenya, Mar 22 – The Central Bank\’s Monetary Policy Committee (MPC) has raised its benchmark base lending rate to 6percent from 5.75percent.

The decision to raise the Central Bank Rate (CBR) comes as a surprise move as industry players had expected the CBK to at least maintain it at 5.75percent.

In an e-mailed statement, the MPC said the resolution to tighten the monetary policy stance comes at the time the economy has come under both domestic and external shocks that has seen the inflation accelerate to 6.54percent while the shilling has been weakening against major currencies.

The tightening of the monetary policy is designed to tame the skyrocketing consumer prices particularly those of food in order to ensure that they do not become a permanent feature in the economy.

“This tightening will provide a solution to inflationary pressure and will stabilize the exchange rate while still protecting economic activity,” MPC Chairman Prof Njuguna Ndung’u said.

Various parts of the country have been experiencing the onset of long rains which are expected to provide a temporary relief on the food prices front and thus ease the inflationary pressure. However, the same cannot be said for the impact of rising oil prices which are expected to have long tern effect on the economy.

Speaking to Capital Business earlier, the Commercial Bank of Africa\’s treasury department had expected the bank rate to be reviewed upwards.

"Access to easy money is not the priority at the moment. We need to see high inflation and the weakening shilling addressed," CBA said.

While the raising of the CBR will not do much to curb inflation which the Central Bank expects to continue rising over the next two months, it will be positive for the Kenyan shilling which has been on a free fall in the last couple of months.

Various stakeholders have been calling on the Central Bank to intervene and shore up the local currency but CBK had been adamant  arguing that the depreciation was driven by speculation.

The MPC will give a detailed report of its deliberations used to reach the decision this Friday.

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