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Kenya’s central bank announced a big increase in interest rates on Tuesday aimed at stabilizing the shilling currency, whose depreciation has spurred economic distress.
The monetary policy committee increased the rate by 200 basis points to 12,5 percent, its first hike since June when it raised it by 1 percentage point, and the largest increase since 2011, Bloomberg reported.
What the MPC said: “There is need to adjust the monetary policy stance to address the pressures on the exchange rate and mitigate second round effects,”
“This will ensure that inflationary expectations remain anchored, while setting inflation on a firm downward path towards the 5 percent mid-point of the target range.”
“The MPC stands ready to further tighten monetary policy as necessary to ensure price and exchange rate stability are achieved,” the central bank said, adding its MPC would meet again in February 2024.In November, inflation experienced a slight decrease to 6,8 percent year-on-year, down from 6,9 percent in October.
The central bank noted on Tuesday that the depreciation of the exchange rate had contributed 3.0 percentage points to the November reading.
The shilling has weakened by almost 20 percent against the dollar so far this year, making it one of the worst-performing currencies in Africa as investors balked at the potential repayment of a US$2 billion Eurobond in June.
The weakness has been despite additional financial support from the International Monetary Fund, which last month granted staff-level approval for an additional $938 million to bolster the East African nation’s reserves. – Business Insider Africa
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