Kenya's newly appointed Governor of the Central Bank, Kamau Thugge, has promised to tackle inflation head-on after growing complaints of rising prices and potential protests over the cost of living in Kenya. In his first briefing since becoming Governor of the Central Bank last week, Thugge stated that maintaining price stability is crucial to their mandate.
He emphasized that inflation acts almost like a tax, reducing the real incomes of everyone. "The cost of living is one of the issues concerning the country, and therefore, it's of utmost importance that we address inflation because it affects everyone, including those without an income," Thugge said.
According to Thugge, the rate of price growth was higher than expected, sitting at 8% in May, compared to the central bank's projected 7.1%. This jump in inflation played a role in the MPC's decision to increase the benchmark central bank rate by 100 basis points to 10.5% at an unscheduled meeting on Monday.
The centrals bank is said to be very concerned with core price growth that has stayed above 3% since June 2022. This indicates that persistent inflationary pressures are at play in the economy. Thugge noted that the strong measures to increase the interest rate on Monday was in response to non-food, non-fuel inflation rising above 4%.
Some analysts predict that further hikes in policy rates could be an option to combat inflation. However, Mpho Molopyane, an economist at Absa Group Ltd, noted that it is still too early to determine if the recent rate hike could mark a change in the monetary policy stance. Against the backdrop of deteriorating inflation, Molopyane expects the MPC to increase policy rates by a further 100 basis points by the end of this year. With risks leaning toward more aggressive tightening, the central bank must be proactive in implementing measures to maintain price stability in Kenya.