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Central Bank Raises Interest Rates


In efforts to tame inflation pressures, the Central Bank of Kenya raised its key interest rate to 10.50% from 9.50% on Monday. The rate was previously raised from 8.75% to 9.50% in May. The Monetary Policy Committee noted the sustained inflationary pressures, the increased risks to the inflation outlook, the elevated global risks, and their potential impact on the domestic economy before deciding to anchor inflation expectations by tightening the monetary policy.

In May, Kenya’s inflation rate increased to 8.0% from 7.9% driven by fuel, food, and non-food non-fuel prices. Food inflation rose due to a sharp increase in sugar prices while fuel inflation increased due to the removal of fuel subsidy and electricity price increases following an upward adjustment of tariffs in April. According to the bank, overall inflation is expected to remain high in the near term, mainly due to recent electricity price hikes and the removal of fuel subsidies.

Additionally, a mini-survey of the agriculture sector conducted in June revealed that prices of some key food items, particularly sugar and maize, still remain high. The bank’s committee plans to meet again in July but remains ready to reconvene earlier if necessary.

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