The Central Bank of Kenya’s Monetary Policy Committee (MPC) raised the Central Bank Rate (CBR) by 50 basis points to 13.00% from 12.50% on 6 February 2024, tightening policy further as the country contended with a weaker shilling and inflation above the midpoint of the government’s target range.
The increase took the benchmark rate to its highest level since 2012. It was the third rate rise since Governor Kamau Thugge took office in June 2023 and the seventh in a tightening cycle that began in May 2022, bringing cumulative increases over the cycle to 600 basis points. The MPC had last raised the rate at its meeting of 5 December 2023, when it lifted the CBR to 12.50% from 10.50%.
INFLATION AND THE SHILLING
Kenya’s inflation target is 5.0%, within a band of 2.5% to 7.5%. Annual consumer price inflation rose to 6.9% in January 2024, driven by food and energy costs. While that reading was within the target band, inflation has remained above the 5.0% midpoint since November 2020, a persistence partly attributed to the depreciation of the shilling. Governor Thugge has committed to bringing inflation down to the midpoint of the target range.
The shilling had lost almost 25% of its value against the US dollar since the start of 2023. Elevated risks to the inflation outlook, pressure on the currency, volatility in global oil prices and the pass-through of exchange rate movements to domestic prices were among the factors behind the tightening.
Kenya’s eurobond due 2032 extended losses after the announcement, with its yield rising by 1 basis point to 10.54%, while the shilling strengthened by 0.3% against the dollar.