The economic noose tied around Kenyans following the inflation is set to get tighter after the Central Bank of Kenya increased the minimum lending rate imposed on loans by banks.
On Thursday, September 29, CBK governor, Patrick Njoroge, announced that the Monetary Policy Committee (MPC) had resolved to raise the rate from 7.5 to 8.25 per cent.
CBK hiked the rates to cushion lenders from the ripple effects of a spike in inflation rates domestically and globally.
"The committee noted the sustained inflationary pressures, the elevated global risks, and their potential impact on the domestic economy 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 7.50 per cent to 8.25 per cent," read the statement in part.
CBK's Monetary Policy Committee (MPC) further listed the measures put in place by the government to ensure that sufficient funds are raised to meet the budget for the 2022/23 financial year.
"The Committee noted that the ongoing implementation of the FY2022/23 government budget, particularly the strong tax revenue collection, reflects enhanced tax administration efforts and increased economic activity," read the statement in part.
It also underlined that to manage the inflation rates, it had to take advantage of the positive economic growth registered in the country over the last year to cushion the country from inflation.
This will be done by tapping into local business investments to counter the effect caused by foreign exchange levels due to an increase in reliance on imported goods such as petrol and palm oil.
Among the sectors that displayed a promising future is the banking centre with CBK reporting an increase in loan repayments and recoveries and the reduction of non-performing loans in the country.
"Strong credit growth was observed in manufacturing (15.2), trade (13.3), business services (16.1), and consumer durables (14.3) per cent. The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities," Njoroge disclosed.
With the minimal rate increased to 8.25 per cent, banks can now charge up to 15.25 per cent interest on loans it offers to Kenyans.
Banks will also, however, prefer to offer credits to the government and blue chips as it fears high default rates from the common mwananchi.