By George Obulutsa
NAIROBI (Reuters) -Kenya’s central bank raised its benchmark lending rate on Monday for the first time in nearly seven years, saying inflation risks were elevated because of global commodity prices and supply chain disruptions.
The bank raised the rate to 7.50% from 7.00% previously, the first hike since July 2015.
A Reuters poll of five economists showed four expected the rate to be held at 7.00%, with one predicting an increase to 7.50%.
The bank’s Monetary Policy Committee “noted the elevated risks to the inflation outlook … and concluded that there was scope for a tightening of the monetary policy in order to further anchor inflation expectations,” it said in a statement.
Consumer inflation rose to 6.47% year-on-year in April, its highest since September.
“The Committee noted the adverse impact of the ongoing Russia-Ukraine conflict and other global disruptions on the Kenyan economy through increases in commodity prices particularly fuel, wheat, edible oils and fertiliser,” the central bank said.
The bank said foreign exchange reserves, which stand at $8.179 billion, or 4.86 months of import cover, were sufficient and provided a cushion against any short-term shocks in the foreign exchange market.
The shilling has struck a series of record lows against the dollar this year and is down 3% so far this year, touching a fresh low of 116.70/90 in Monday’s trade.
Razia Khan, chief Africa economist at Standard Chartered, said a rate hike was appropriate given the inflation and foreign exchange pressure.
“While we think the rate hike will have only a very limited impact on FX … as much of the pressure is related to global food and fuel prices rather than the strength of demand, it nonetheless sends the right message on the Central Bank of Kenya’s prioritisation of price stability,” she said.
(Reporting by George ObulutsaEditing by Alexander Winning and Tomasz Janowski)
