World Bank backs Kenya's pause on rate increases
Friday October 06 2023
The Central Bank of Kenya in Nairobi, Kenya. FILE PHOTO | NMG
The World Bank Group has backed the pause on monetary policy tightening by the Central Bank of Kenya (CBK), highlighting the receding of inflationary pressures in the country.
According to the multilateral lender, the apex bank could step off the brakes even as other Central Banks in the region may be required to tighten the belt further as inflation in their jurisdiction remains elevated.
“At the sub-regional level, inflationary pressures are receding in most East and Southern African countries- and in some cases, they are within or close to medium-term targets for instance, Kenya, South Africa, and Uganda. It is likely that these countries may pause their hiking cycle, while others may need to continue to fine-tune policy to reduce inflation further,” the World Bank stated in its revised Sub-Saharan economic outlook report, published this week.
Read: Fuel cost surge triggers fresh fears of inflation, rate hikes
The report coincides with CBK’s second consecutive hold of monetary policy at this week’s rate meeting with the bank noting that inflation expectations remained well anchored even as the effects of the recent tightening cycle continue to be transmitted in the economy.
CBK’s policy tightening cycle began in June last year as inflation broke the government’s upper ceiling of 7.5 percent for the first time in nearly five years.
Cumulatively, the CBK has raised the benchmark lending rate by 3.5 percent with the biggest jump in the policy rate coming in June this year when the Central Bank Rate rose by a full percentage point from 9.5 percent to 10.5 percent.
The rate has nevertheless been held at two consecutive policy meetings since, with inflation falling off in the intermediating period.
Read: Kenya’s interest rates cut plan running out of steam
Headline inflation has for instance eased from a high of 9.6 percent in October 2022 to 6.8 percent in September this year.
September’s inflation rate was nevertheless a slight uptick from a rate of 6.7 percent in August.
The modest pickup in inflation has arisen largely from increased domestic fuel prices as the latest maximum pump price review by the Energy and Petroleum Regulatory Authority sent fuel prices to an all-time high.
Fuel inflation stood at 13.1 percent in September to reflect the rise in international oil prices while food inflation rose to 7.9 percent from 7.5 percent in August on the rise of key vegetable prices including onions, Irish potatoes, cabbages, spinach, kales, and tomatoes.
Read: Kenya inflation stays high amid improved food production
The prices of principal non-vegetable food items such as maize and wheat flour declined on improved supply attributed to ongoing harvests and government measures to zero-rate key food imports.
Noon-food, non-fuel, or core inflation was meanwhile unchanged in September at 3.7 percent reflecting the impact of monetary policy measures and muted demand pressures.