Kenya’s central bank unexpectedly raised its benchmark interest rate for the second time since Governor Kamau Thugge took office in June, citing the need to support the country’s battered shilling.
The monetary policy committee increased the rate by 200 basis points to 12.5%, the largest increase since 2011.
The MPC “concluded that there is need to adjust the monetary policy stance to address the pressures on the exchange rate and mitigate second-round effects including from global prices,” he said.
“What’s interested me these past few years is how Kenya has managed a depreciation of the currency, from roughly 20% overvalued a few years ago to a little cheap right now,” Charlie Robertson, Head of Macro Strategy at FIM Partners, wrote in a note to clients.
“Today’s interest rate hike helps ensure some of the highest real interest rates in Africa – which is again helpful in containing inflation. It’s also helpful in reassuring foreign investors about their commitment to macro stability.”
The shilling has weakened by almost 20% against the dollar so far this year, making it one of the worst-performing currencies in Africa.
The MPC noted that “exchange rate depreciation continues to exert upward pressure on domestic prices, thereby increasing the cost of living and reducing purchasing power.” It judged that currency weakness had contributed about 3 percentage points — or almost half — of November’s rise in prices.
Kenya’s consumer price inflation slowed to 6.8% in November from 6.9% the prior month.
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