Pain for Kenyan borrowers as CBK raises base loan interest rate to 12.5%

Nairobi, Kenya – The Central Bank of Kenya (CBK) has increased the base lending rate to 12.5%, up from 10.5%.

CBK Monetary Policy Committee (MPC) chaired by Governor Kamau Thugge said the move is aimed at easing pressure on the exchange rate.

Why CBK tightens monetary policy

The regulator also cited mitigation of the second round effects from the global prices.

“This will ensure the inflationary expectations remain anchored while setting inflation on a downward path towards 5%mid-point of the target range,” said Thugge in a press release on Tuesday, December 5,

The increase in Central Bank Rata (CBR) means that borrowers will have to dig deeper into their pockets for loans.

Since the regulator increased the rate to 10.5% in July, commercial bank loans have been on the rise in the last six months.

“Growth in private sector credit remained relatively stable at 12.5% in October 2023 and 12.2% in September 2023,” the MPC statement continued in part.

The banking sector remained stable and resilient with strong liquidity and capital adequacy ratios during the same period under review.

The regulator noted that the rising inflation is exacerbated by the continued drop in the shilling against the US dollar.

What increases Kenya’s inflation

Kenya shilling traded at KSh 153.3 against the US dollar, as of November 30, 2023.

“The exchange rate depreciation continues to exert pressure on domestic prices, thereby increasing the cost of living and reducing purchasing power. The declining exchange rate contributed 3% points to the November inflation,” the MPC said.

Kenya’s inflation in November 2023 has slightly dropped by 0.1% to 6.8% down from 6.9% reported in October 2023.

The figure is 2.5% below the rate of 9.5% reported during a similar period in 2022.

Data from the Kenya National Bureau of Statistics (KNBS) showed that the rate of inflation was driven by the high fuel and other costs.

The report showed an increase in prices of commodities under Transport (13.6%); Housing, Water, Electricity, Gas and other fuels (8.5%); and Food and Non-alcoholic Beverages (7.6%) between November 2022
and November 2023.

Prices of petroleum products, electricity and cooking gas increased by 15.5% during the same month under review.

This is after the Energy and Petroleum Regulatory Authority (EPRA) revised pump prices, retaining petrol at KSh 217.36 per litre.