Expensive Loans Ahead, Central Bank Rate Moves To Double Digits To 10.50%

Kenyan borrowers are staring at expensive loans after the Central Bank of Kenya increased the base lending rate by 100 basis points, hitting double digits for the first time since 2018.

“The Committee, therefore, decided to raise the Central Bank Rate (CBR) from 9.50 percent to 10.50 percent. The Committee concluded that there was for a further tightening of the monetary policy to anchor inflation expectations,” said the Monetary Policy Committee.

The Committee said that it expects the inflation rate to remain high in the near term on account of increased electricity prices following the upward review of electricity tariffs in April by the Energy and Petroleum Regulatory Authority and the removal of the fuel subsidy.

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With the passing and the signing of the Finance Bill 2023 into law, Kenyans are about to experience one of the highest inflation increases given that Value Added Tax (VAT) on petroleum products has been moved from 8 percent to 16 percent.

According to the new Central Bank of Kenya Governor, Dr. Kamau Thugge, there has been a strong growth in the export receipts which has grown 5.5 percent in a year to May 2023 supported by higher exports of tea and manufactured goods.

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At the same time, according to the Committee, the exchange reserves which currently stand at $7.4 billion which equals 4.07 months of import cover provide enough buffers for short-term shocks in the forex market.

Overall inflation increased to 8 percent in May from 7.9 percent in April, driven by fuel, food, and non-fuel prices. At the same time, food inflation increased to 10.2 percent in May from 10.1 percent in April due to a sharp rise in sugar prices.

Fuel inflation increased to 13.6 percent in May from 13.2 percent in April mainly due to the removal of fuel subsidies, and increases in electricity prices following an upward adjustment of tariffs in April.

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