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Kenya Apex Bank Surprises with First Rate Hike in Almost Seven Years

Kenya Apex Bank Surprises with First Rate Hike in Almost Seven Years

As concerns about commodity prices grow, Kenya’s central bank unexpectedly hiked its benchmark interest rate for the first time in over seven years to underpin inflation expectations.

Central Bank Governor, Patrick Njoroge said in an emailed statement Monday that the monetary policy committee increased the rate by 50 basis points to 7.5 percent. It’s the first time since July 2015 that the number has risen. In a Bloomberg poll, none of the five economists predicted the change.

“Elevated risks to the inflation outlook due to increased global commodity prices and supply chain disruptions,” Njoroge said, prompted the decision.

According to the governor, respondents in three surveys conducted prior to the MPC meeting were concerned about rising inflation, the impact of the Ukraine crisis on commodity prices, supply chain disruptions, and heightened political activity.

A bankers’ lobby group urged the central bank to raise the benchmark rate last week, citing increased credit risk and growing pricing pressures caused by a prolonged drought in areas of the East African country, a shilling trading at record lows, and clogged supply chains.

Inflation accelerated to 6.5 percent in April, approaching the central bank’s target range of 2.5 percent to 7.5 percent. According to a separate Bloomberg poll of ten experts, annual inflation will average 6.5 percent this year, up from 6.2 percent previously predicted.

Kenya’s central bank has raised borrowing costs, joining regional peers from South Africa to Nigeria, in an effort to slow price increases and attract investors looking for safer investments in the US and Europe.

The rate hike may help stabilise the shilling and inflation expectations, but it could stifle economic growth and anger politicians ahead of the August elections. Kenya’s Parliamentary Budget Office predicts a 4.9 percent growth rate this year, down from 7.5 percent last year.

The MPC expects the economy to remain resilient in 2022, despite the ongoing crisis in Ukraine and other global disturbances, according to Njoroge.

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