NAIROBI: Interest rates are set to increase after the Monetary Policing Committee (MPC) raised the Central Bank Rate by 1.5 percentage points to 10 percent from 8.5 percent. The committee says this in a bid to safeguard the shilling from slipping further.
“The committee concluded that the tightening bias stance adopted by the MPC and implemented through the CBK monetary operations had curtailed the rapid depreciation in the exchange rate.”
“However, the emerging aggregate demand pressures and the persistent volatility in the global foreign exchange markets coupled with the projected recovery in international oil prices have implications on inflationary expectations and the potential of the pass-through of the past exchange rate movements on consumer price inflation, ” the committee stated.
The MPC had pushed forward its meeting by a full month owing to the weakening shilling. As of end of May the Kenyan shilling has depreciated against the US dollar by 7.8 percent, but appreciated against the euro by 2.8 percent from the beginning of the year.
Commercial Bank of Africa (CBA) Treasury Dealer John Njenga says raising the CBR was much expected in the market and will ease dollar demand hence strengthen the shilling. He says the market has already responded positively to this news with the shilling trading at Sh97.10 against Sh97.20 to the dollar.
Earlier, the shilling was trading at 97.50 against 97.70 to the dollar with the market players trading nervously ahead of the MPC Meeting.
“We expect to see banks react to this by increasing interests’ rates on loans, there will be decreased loans uptake, banks need to be cautious as this may lead to an increase in nonperforming loans, “Njenga added.
President Uhuru Kenyatta nominated Patrick Ngugi Njoroge as the next CBK Governor with Members of Parliament expected to vet him on June 16 alongside the CBK Board Chairperson nominee Mohammed Nyaoga.
