In the bid to curb inflation expectations as concerns about commodity prices build, Kenya has raised its interest rate.
The increase is the first in almost seven years in the East African country.
According to Kenya’s central bank governor, Patrick Njoroge “inflation quickened to 6.5% in April, edging closer to the central bank’s 2.5% to 7.5% target band. A separate Bloomberg survey of 10 economists projects annual inflation will average 6.5% this year, compared with a previous forecast of 6.2%.”
Njoroge further revealed that the monetary policy committee increased the rate by 50 basis points to 7.5%, the first increase since July 2015 based conducting a survey that revealed that “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 explained that the decision was taken because of elevated risks to the inflation outlook due to increased global commodity prices and supply chain disruptions.
“Elevated credit risk and mounting price pressures due to a prolonged drought 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,” Njoroge said.
Interest rate is the amount a lender charges a borrower and is a percentage of the principal—the amount loaned. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).