The Central Bank of Kenya (CBK) on Tuesday raised the base lending rate from 12.50 per cent to 13 per cent, a policy decision that sets the stage for banks to increase interest rates on loans dished out to Kenyans by commercial banks.
In a statement released after the latest Monetary Policy Committee (MPC) meeting, CBK Governor Kamau Thugge noted that the policy decision was taken to tame the surging inflation rates.
“The proposed action will ensure that inflationary expectations remain anchored while setting inflation on a firm downward path towards the 5.0 per cent mid-point of the target range, as well as addressing residual pressures on the exchange rate,” CBK noted in a statement.
The MPC noted that overall inflation increased to 6.9 per cent in January 2024 from 6.6 per cent in December 2023 and remained sticky in the upper bound of the government's target range.
Food inflation, meanwhile, increased to 7.9 per cent in January 2024 from 7.7 per cent in December 2023, largely reflecting higher prices of a few non-vegetable items, following reduced supply partly attributed to seasonal factors.
Meanwhile, fuel inflation rose to 14.3 per cent in January 2024 from 13.7 per cent in December 2023, largely due to higher electricity tariffs.
"The risks to inflation remain elevated in the near term, reflecting the impact of the second-round effects of the rise in fuel inflation, and pass-through effects of exchange rate depreciation," CBK stated.
Nonetheless, Thugge disclosed that CBK's foreign exchange reserves, which currently stand at USD 7,101 million (3.8 months of import cover), continued to provide adequate cover against any short-term shocks in the foreign exchange market.
According to CBK, the number of loan applications and approvals remained resilient, reflecting sustained demand, particularly for working capital requirements.
"The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 14.8 per cent in December 2023 compared to 15.3 per cent in October 2023," read part of a statement by CBK.
"Growth in commercial bank lending to the private sector stood at 13.9 per cent in December 2023 compared to 13.2 per cent in November."
Even so, Thugge discloses that the economy was expected to remain strong in 2024 mainly because of a boost from the services sector.
