Central Bank of Kenya Hikes Rate 150bps to 18.00%

The Central Bank of Kenya upped its benchmark lending rate by 150 basis points to 18.00% from 16.50% previously, and held the Cash Reserve Ratio at 5.25%.  The central bank Governor, Njuguna Ndung'u, said: "The Committee noted that although supply shocks continued to drive domestic prices upwards, demand driven inflation pressures arising from the growth of private sector credit continued to persist.  In addition, it was noted that there were exchange rate risks emanating from uncertainty in the global financial markets due to the debt crisis in the eurozone. In order to address these risks, the Committee considered it necessary to further tighten the monetary policy stance at the margin."

At its previous meeting the CBK increased the interest rate by 550bps to 16.50% and raised the Cash Reserve Ratio by 50bps to 5.25%.  That move followed a 400bp increase of the interest rate to 11.00% at its October meeting, after raising 75bps in September, and previously increasing, and subsequently decreasing the discount window rate by 75 basis points to 6.25%.  The Kenyan central bank last increased the benchmark lending rate by 25 basis points in May this year.  

Kenya experienced annual headline inflation of 19.72% in November, up from 18.91% in October, 17.3% in September, 16.7% in August, up from 15.5% in July, and up sharply from 9.19% in March this year, according to inflation data from the Kenya National Bureau of Statistics.  The Central Bank of Kenya has an inflation target of 5 percent.  

Kenya reported seasonally adjusted GDP growth of -4.6% in Q2, compared to +2% in Q1.  A Kenyan Ministry of Finance official noted that Kenya is expected to record economic growth around 5-5.5% this year, and 6% next year.  

The Kenyan Shilling (KES) has weakened about 11% against the US dollar so far this year (having weakened by as much as 31%); meanwhile the USDKES exchange rate last traded around 89.95

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