Kenyans should brace for tough times after the Central Bank of Kenya (CBK) increased its base lending rate from 7.0 per cent to 7.5 per cent, according to the Monetary Policy Committee (MPC) findings.
This comes on the backdrop of a continuous increase in food and oil prices leading to a spike in the country's inflation rate from 5.6 per cent in March to 6.5 per cent.
The statement, which was released on Monday, May 30, indicated that the food prices had surged due to an increase in global prices leading to a spike in inflation from 9.9 per cent to 12.1 per cent.
"Overall inflation increased to 6.5 per cent in April 2022 from 5.6 per cent in March, mainly due to higher food and fuel prices.
"Food inflation rose to 12.1 per cent in April from 9.9 per cent in March, largely on account of vegetable prices due to seasonal factors, and the impact of global supply chain disruptions on cooking oil prices. Fuel inflation increased to 8.5 percent from 5.8 percent driven by the rise in international oil prices," read the statement in part.
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.
“The committee noted the elevated risks to the inflation outlook due to increased global commodity prices and supply chain disruptions and concluded that 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 committee also noted the adverse impact of the ongoing Russia - Ukraine conflict and other global disruptions on the Kenyan economy through increases in commodity prices particularly fuel, wheat, edible oils and fertiliser.
CBK also observed that the global economic outlook has become more uncertain, reflecting the impact of the ongoing Russia-Ukraine conflict, uncertainty about the required policy responses in the advanced economies, effects of Covid-19 containment measures in China, and persistent supply chain disruptions.
The inflation on food items across the country has remained high despite Parliament turning down a proposal to increase taxes on basic food items.
A 2kg packet of maize flour is currently retailing at approximately Ksh155 to Ksh165, whereas that of wheat goes for Ksh185 to Ksh195.
The increase in wheat flour prices in recent weeks has seen prices of some products such as bread go up by close to Ksh10.
