CBK team must act with wisdom

Thursday, September 29th, 2022 02:23 | By
Central Bank PHOTO/Courtesy

The Central Bank of Kenya (CBK) will hold its Monetary Policy Committee (MPC) meeting today, during which it is expected to outline key interventions that will inform Kenya’s economic trajectory.

With increasing demand for the government to ease the cost of living, all eyes will be on the policymakers to determine how their pronouncements will determine not only inflation, but also interest rates.

Today’s meeting comes on the back of yesterday’s brainstorming between two banks and Safaricom and the President during which they agreed to reduce the cost of Fuliza, the digital loan.

Already, the pain of high inflation is being felt across the economy with the overall year-on-year inflation rate as measured by the Consumer Price Index (CPI) having hit 8.5 per cent in August, prompting calls for urgent interventions to cushion the poor, many of who are also adversely affected by drought.  But while prices of basic commodities have risen in recent months, the good news is that inflationary pressure is easing globally, due to a gradual decline of oil prices. This is expected to cushion consumers since fuel has a knock-on effect the cost of various other goods and services.

Today, MPC will be facing the challenge of not only taming inflation but also supporting credit flow in an ecosystem that locks many out of borrowing during to negative credit ratings.

It is usually a tight call. For example, in May the MPC raised the benchmark Central Bank Rate (CBR) — a signal for direction in interest rates — to 7.5 per cent to stabilise the shilling and check inflation. However, this increased lending costs while inflation also rose from 7.1 per cent in May to 8.3 per cent in August. As it is, concerns abound that a further tightening of policy might hurt credit access for individuals and small-scale businesses. This affects the private sector growth as well as household consumption patterns. It does not help that this is coming at a time when the economy is struggling to recover from political jitters, which deny businesses headroom for growth in every election cycle.

Further, the case for reducing interest rates got support from President William Ruto yesterday when he attended a forum where the two lenders, KCB and NCBA, reduced rates for the popular Fuliza loans by 50 per cent to enable more Kenyans to tap the product for cash. These developments may give the MPC a tough time but clearly the road map has been spread out in front of them, leaving them with few options to ensure every Kenyan gets to enjoy the fruits of economic growth.

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