Central Bank of Kenya lowers monetary easing to curb inflation

Central Bank of Kenya governor Dr. Patrick Njoroge. [Photo: Standard]

Central Bank of Kenya moved to lower monetary easing due to rise in inflation occasioned by a recent implementation of eight percent value added tax.

The resolve comes amid the recent decision by the Central Bank making two cuts on the lending rates this year of 0.5 percent and 9.5 percent. CBK also made another cut of nine percent in July this year on grounds of nonthreatening inflation, constant exchange rate and an objective of lending out money to small business enterprises to improve the country’s economy.

Increase in petroleum products has seen inflation rate go high. However, economists from the commercial Bank of Kenya believe that economic growth has given the regulator a chance to fight price increases.

CBA analysts said through a note, “With rising cost-push inflation driven by recent tax measures and rising oil prices, scope for further accommodation is likely to be limited. This (rise in oil price) is likely to invite considerable caution among central banks in oil importing countries.”

Too, demand pressure for credit from the regulator has been going up for a time now. “Core inflation accelerated to 4.7 per cent from 4.2 per cent in August. While it remains below the medium term target of five per cent, sustained build-up could invite a tightening response from the Central Bank,” claimed the analysts.

CBA economists held that the country was experiencing economic growth of 6.3 percent in the second quarter.

Inflation hit high in September to a 5.7 percent from a previous of 4.04 percent in August since the implementation of Finance Bill 2018.

CBK had but a cap on lending rates by commercial banks that economists believe had a negative impact on the economic growth of the country.

Current inflationary pressure resulting from increased oil prices stands at four-year high of $85 a container.