Kenya leaves rate at 8.75 percent bucking the trend in key economies in Africa

Kenya’s central bank left its benchmark lending rate unchanged at 8.75 percent, its monetary policy committee said, bucking the trend with major economies across Africa including Nigeria, Ghana, and South Africa who have increased their base lending rates in the past week

The monetary policy committee noted that its last upward review of the rate in November last year was bearing positive results in the economy.

Ghana has lifted borrowing costs by 100 basis points to 28 percent to “help drive inflation on a downward path.” In the same line, Nigeria’s central bank increased the key rate by 100 basis points to 17.5 percent despite a marginal dip in inflation numbers.

In South Africa, the monetary policy committee equally increased the benchmark rate by 50 basis points to 7.25 percent.

Policymakers in Nairobi increased the base lending rate by 50 basis points for the first time since 2015 during their meeting in May last year to tackle growing inflation.

And in September, they increased it by 75 basis points before adding another 50 basis points in November.

Fuel inflation declined to 12.7 percent in December 2022 from 13.8 percent in November, due to lower international oil prices, but remains elevated on account of the scaling down of the fuel subsidy and increases in electricity prices due to higher tariffs, Central Bank of Kenya (CBK) policymakers said.

Food inflation eased to 13.8 percent in December from 15.4 percent a month earlier, largely driven by a drop maize and milk prices attributed to the ongoing harvests and the impact of the short rains.

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“Overall inflation is expected to decline in the near term, also supported by the recently announced Government measures to allow duty-free imports of key food items particularly maize, rice and sugar,” the monetary policy committee noted.

The country is set to allow duty-free import of at least 10 million bags of maize as well as rice and sugar in the next six months to plug supply gaps from local sources.

Kenya’s overall inflation decreased to 9.1 percent in December 2022 from 9.5 percent in November, on account of lower food prices in the period.

High demand from traditional markets saw receipts from tea go up by 16.1 percent even as earnings from manufactured goods exports increased by 22.1 percent during the period.

The CBK foreign exchange reserves, which currently stand at $7,005 million (3.92 months of import cover), continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market, the policymakers noted.

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