Jolt for Kenya as inflation exposes futility of rate ceiling

Mecry Gathoni a fresh produce trader at her stall at Chaka Market in Nyeri County on April 1 2016.The price of fresh commodities has significantly increased following a dry spell.PHOTO:KIBATA KIHU/STANDARD.

President Uhuru Kenyatta’s interest-rate pledge is in tatters. Just five months before Uhuru Kenyatta seeks re-election, the country’s inflation rate has surged to the highest level since 2012 and the Government is struggling to borrow money at yields it’s ready to offer.

That’s left the caps he imposed on commercial interest rates all but unviable in a country already heading for a cash crunch. The bank teller-turned-politician has put central-bank policy makers in a dilemma as they prepare to meet on March 27. They must raise interest rates to restore the flow of funds to a government that’s missing borrowing targets and tax collections. Yet, if they do so, they risk choking off bank loans to the industry and undermining Kenyatta’s 2013 pledge to reduce borrowing costs.