CBK vows to deal with second-round effects of high oil, food prices

Thursday, September 30th, 2021 00:00 | By
Pump price. Photo/Courtesy

Central Bank will use any tool available to deal with the second-round effects of high oil and food prices and stands ready to start raising interest rates going forward.

Governor Patrick Njoroge said the bank cannot currently do much to control the fuel inflation arising from high petroleum prices, but will do whatever it takes to deal with the situation arising from their impact on general market prices of other goods and services.

“We do understand that monetary policy cannot overcome the direct concerns from oil prices, supply chains and the weather.

As policy makers we shall look at the second-round effects, and those are the ones that we do have power over, in essence our policy will be effective in constraining these effects,” Njoroge said.

“The MPC thereby indicated that it stands ready to take whatever action will be needed particularly to deal with the second effects,” he added during a media briefing yesterday. 

Njoroge also said the banking sector regulator is ware of new taxation measures, adding it expects new taxes to add nearly two percentage points to overall inflation.

The Kenyan economy has seen a surge in inflationary pressure due to fuel and food prices but non-food non-fuel prices remained below 3 per cent.

The governor also said that tax measures will increase inflation by 1.87 per cent hence increasing the prices of goods and services.

Financial markets

He said he expects other central bank governors across the world to lift their hand brakes on policy interest rates which would lead to major shocks in financial markets.

A surprise hike in interest rates tends to push market rates, making borrowers unable to service their loans which could culminate in a financial crisis.

Central banks around the world had interest rates to a record low with Kenya and Ghana offering the lowest policy interest rates on the continent.

Njoroge said the economy will grow by 6.1 per cent in 2021 and 6.5 per cent in 2022.    

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