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- Sep 24, 2010
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[h=1]CBK moves to tame weakening Kenyan shilling[/h]
Updated 1 hr(s) 48 min(s) ago
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The Central Bank
of Kenya has raised its benchmark rate by 400 basis points signaling its bold move to counter inflationary pressures and weakening Kenyan shilling.
This effectively raises the Central Bank Rate (CBR) to 11 per cent up from the previous seven per cent it was adjusted to two weeks ago.
The regulator at a meeting of its Monetary Policy Committee said the move to raise the CBR was expected to offer relief to inflation currently at 17.32 per cent.
On Wednesday morning, the shilling traded at 101.80/102.00 against the dollar, stronger than Tuesday's close of 102.00/20 ahead of the MPC meeting.The move by MPC is a bid to stem inflationary pressures, stabilize the exchange rate and re-establish healthy growth.
CBK stated that its recent policy decisions had been based on the belief supply-side pressures that had driven up prices would be short-lived, but it was now apparent they were a threat to economic recovery
.
"The Committee was concerned that the gradual tightening which has been directing monetary policy has been based on the belief that the supply side problems would soon be resolved as had happened in previous, even worse, drought episodes," read a statement from the CBK to newsrooms.
The peace meal raise of the rate had been criticized by market players, noting that the CBK needed a more bold approach to counter the inflationary pressures.
"These complementary actions should effectively signal relief to the supply constraints that have been driving inflationary expectations and adverse expectations with respect to the exchange rate," added the statement
Further the committee agreed that it would be meeting every first week of the month until further notice.
This is expected to make it keep a close watch on both inflation and currency volatility in the market.
The central bank's bold move comes after the shilling set a record low against the dollar.
"This was the right move. The disconnect between market rates and The CBR was too wide and it was impairing the bona fides of our monetary policy," said independent analyst Aly Khan Satchu, who had predicted an increase to 10 percent.
"The central bank has bared its fangs and the interest rate markets needed to see the central bank's teeth," he said.
CBK Governor prof Njuguna Ndungucame under fire for not raising the Central Bank Rate early enough or far enough when inflation started to accelerate at the beginning of 2011.
"Finally, an aggressive move - much stronger than we and the market were expecting. But exactly what was necessary, if overdue," said Stuart Culverhouse, chief economist at Exotix.
-Additional report by Reuters
Updated 1 hr(s) 48 min(s) ago
[h=2]Related Stories[/h] [h=3]
CBK moves to tame weakening Kenyan shilling[/h] [h=3]
CBK chief keeps his cool as shilling takes a beating[/h] [h=3]
Another economics test for Prof Ndungu as Monetary Committee meets[/h] [h=3]
Shilling weakens further to US dollar[/h] [h=3]
Parliamentary committee wants IMF to rescue falling shilling[/h] [h=3]
Parliament to probe shilling fall[/h] The Central Bank
of Kenya has raised its benchmark rate by 400 basis points signaling its bold move to counter inflationary pressures and weakening Kenyan shilling.This effectively raises the Central Bank Rate (CBR) to 11 per cent up from the previous seven per cent it was adjusted to two weeks ago.
The regulator at a meeting of its Monetary Policy Committee said the move to raise the CBR was expected to offer relief to inflation currently at 17.32 per cent.
|
| CBK Governor Prof Njuguna Ndungu. The Monetary Policy Committee on Wednesday raised the Central Bank Rate (CBR) to 11 per cent in a move to counter inflationary pressures and weakening Kenyan shilling [PHOTO: STANDARD] |
CBK stated that its recent policy decisions had been based on the belief supply-side pressures that had driven up prices would be short-lived, but it was now apparent they were a threat to economic recovery
. "The Committee was concerned that the gradual tightening which has been directing monetary policy has been based on the belief that the supply side problems would soon be resolved as had happened in previous, even worse, drought episodes," read a statement from the CBK to newsrooms.
The peace meal raise of the rate had been criticized by market players, noting that the CBK needed a more bold approach to counter the inflationary pressures.
"These complementary actions should effectively signal relief to the supply constraints that have been driving inflationary expectations and adverse expectations with respect to the exchange rate," added the statement
Further the committee agreed that it would be meeting every first week of the month until further notice.
This is expected to make it keep a close watch on both inflation and currency volatility in the market.
The central bank's bold move comes after the shilling set a record low against the dollar.
"This was the right move. The disconnect between market rates and The CBR was too wide and it was impairing the bona fides of our monetary policy," said independent analyst Aly Khan Satchu, who had predicted an increase to 10 percent.
"The central bank has bared its fangs and the interest rate markets needed to see the central bank's teeth," he said.
CBK Governor prof Njuguna Ndungucame under fire for not raising the Central Bank Rate early enough or far enough when inflation started to accelerate at the beginning of 2011.
"Finally, an aggressive move - much stronger than we and the market were expecting. But exactly what was necessary, if overdue," said Stuart Culverhouse, chief economist at Exotix.
-Additional report by Reuters
