CBK Governor Thugge push lending rate to an all-time high after chairing inaugural MPC
The unexpected inflation surge in May has forced the Monetary Policy Committee (MPC) of the Central Bank of Kenya to hold an off-cycle meeting to address the same, Governor Kamau Thugge, who chaired the very first meeting of its kind, has said.
Policymakers raised the benchmark lending rate by 100 basis points to 10.50 per cent, the highest level since 2016, during their meeting on Monday, which was held a month early.
Year-on-year inflation (KECPI=ECI) rose to 8% last month from 7.9 per cent previous month, defying expectations of a decline, and staying outside the government’s preferred range of 2.5 -7.5 per cent.
But the rate is likely to start falling in August after a bump in July that will be driven by higher taxes on fuel, Thugge said. It implies high borrowing costs among Kenyans, at a time when the government is shifting to domestic borrowing.
The Governor said the yields on government securities, which have surged to more than 14 per cent in recent auctions, are expected to stabilize in the course of the financial year starting next month.
He attributed the forecast to projected higher revenue collection, government expenditure cuts and lower planned borrowing.
According to MPC, the push was attributed to a hike in inflation and a gloomy outlook on inflation in the coming months.
“An elevated global risk also informed the decision; however, the country has enough dollars to cover imports for 4 months at Ksh.1 trillion (7.3 billion USD).” Thugge said.
