In its most recent effort to slow the still-rising inflation, the Central Bank of Kenya (CBK) will increase its main policy interest rate by 25 basis points to 9.00% later on Wednesday, according to a Reuters survey.
Six out of 11 analysts polled from March 21–28 predicted a 25-basis-point lift, constituting a slim majority. Three predicted that the CBK would remain unchanged, one predicted a 50-basis-point rise, and another anticipated a 125-basis point increase to 10.00%.
The CBK maintained its benchmark lending rate at 8.75% at its most recent meeting in January, stating that the economy was still adjusting to the prior increase in November. Since last May, it has increased rates a total of 175 basis points.
According to Oxford Economics’ Shani Smit-Lengton, “The central bank will have to tighten policy further if it is to tame rampant inflation, while the U.S. (Federal Reserve)’s recent policy hike will also weigh on Kenyan policymakers’ minds.”
“While there may be room for a larger 50 bps increase, we believe that the monetary authorities will opt for a more cautious approach.”
In the past 18 months, central banks in emerging markets have aggressively tightened monetary policy to combat rising inflation against the background of a strong U.S. dollar relative to their local currencies, particularly that of continental rival Ghana.
Kenya’s policy has been less aggressive than other countries on the continent, despite the fact that inflation is still doggedly sticky. From 9.0% in January to 9.2% in February, inflation increased annually primarily due to increases in food and transportation costs.
On Monday, during the second week of demonstrations against the government and skyrocketing food prices, Kenyan police used tear gas and water cannons to disperse the opposition leader Raila Odinga’s followers.
This month, a few other significant central banks in Africa have already made their benchmark rate choices public. While the central bank of Nigeria increased its benchmark lending rate by 50 basis points to 18.00% last week, as predicted in a Reuters survey, the Bank of Ghana unexpectedly increased its main interest rate by 150 basis points on Monday to 29.5%.
In anticipation of slower inflation and a weaker economy due to power outages, South Africa’s Reserve Bank will increase interest rates by 25 basis points on Thursday for the final time this cycle, according to a separate Reuters survey.