Business Maverick: Kenya surprises with first rate hike in almost seven years

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Kenya’s central bank unexpectedly raised its key interest rate for the first time in almost seven years to anchor inflation expectations as concerns about commodity prices build.

The monetary policy committee increased the rate by 50 basis points to 7.5%, Governor Patrick Njoroge said in an emailed statement Monday. That’s the first increase since July 2015. None of the five economists in a Bloomberg survey predicted the move.

The decision was taken because of “elevated risks to the inflation outlook due to increased global commodity prices and supply chain disruptions,” Njoroge said. Three surveys conducted ahead of the MPC meeting showed respondents remained concerned about rising inflation, the impact of the war in Ukraine on commodity prices, supply chain disruptions, and increased political activity, the governor said.in parts of the East African country, a shilling that’s trading at record lows and choked supply chains prompted a bankers’ lobby group last week to urge the central bank to hike the key rate., edging closer to the central bank’s 2.5% to 7.5% target band.

“Given the pressures on both forex and inflation, raising the policy rate was the right thing to do,” Razia Khan, head of research for Africa and the Middle East at Standard Chartered Bank, said in an emailed note. It sends the right message on the Central Bank of Kenya’s prioritization of price stability, she said.

 

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