Kenya: Central Bank surprises markets in December with largest hike since 2011
At its meeting on 5 December, the Monetary Policy Committee of the Central Bank of Kenya surprised markets by increasing the Central Bank Rate by 200 basis points from 10.50% to 12.50%. Market analysts had expected a hold.
The Bank noted that inflation has remained at the upper bound of the 2.5–7.5% target range since July 2023 and that the shilling has recently depreciated. A hike should help the Bank bring down inflation through two channels. The first is by depressing domestic demand—by making borrowing more expensive. The second is by supporting the shilling—by reducing the price of imported goods, notably oil. Additionally, a stronger shilling would also reduce the cost of foreign currency-denominated debt, helping the government achieve its fiscal targets.
As in past months, the Bank refrained from explicitly indicating its future policy direction. Nevertheless, it underscored the need to “ensure that inflationary expectations remain anchored, while setting inflation on a firm downward path towards the 5.0 percent mid-point of the target range”.
The next monetary policy will be held in February 2024, with the Bank yet to specify an exact date.