Kenya's central bank has raised interest rates from 9.5% to 10.50% - the highest level since 2016 - in a move it said was meant to anchor inflation expectations.
Officials are confident the economy will continue to strengthen for the rest of the year with inflation expected to start falling in August or September.
“This will be supported by resilience in services sector and recovery in agriculture,” Kamau Thugge, the governor of the Bank of Kenya, said in a statement.
The hike means further pain for borrowers and homeowners struggling with mortgage payments.
“People who have loans should start checking with their banks to appreciate the impact of the rise in bank rate,” Polycarp Osero, the East Africa business development manager for Software Group, told TRT Afrika.
“The increase by the Central Bank may force commercial banks to also tighten their interest rates and even reduce the amount that can be availed to an individual for borrowing,” Osero added.
In its budget for the financial year 2023/2024 the government is seeking to increase domestic financing. President William Ruto signed into law the Finance bill 2023 that expanded the tax base.
“Raising the bank rates might make it tough for the government to collect as much as it wants domestically,” Osero said.
The central bank says the country’s foreign reserves currently stands at $7,379 million, which offers four months of import cover.
It said the reserves provide buffer against short term shocks in the foreign exchange market.
