Kenyans Lament After CBK Increased Interest Rate To 12.5%: "Hard Pill To Swallow"

• The Central Bank of Kenya (CBK) increased the base lending rate to 12.5% in December 2023, up from 10.5%
• CBK governor Kamau Thugge said the move is aimed at reducing pressure on the shilling and reducing inflation
• Kenyans expressed their disappointment, saying the move will only accelerate the rising cost of living

TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Kenyans have raised concerns over the Central Bank of Kenya's (CBK) move to increase the base lending rate.

The CBK Monetary Policy Committee (MPC) raised the interest rate to an all-time high of 12.5%.

Why CBK raise base interest rate?

CBK governor Kamau Thugge noted that the move is aimed at easing pressure on the depreciating shilling against the US dollar and reducing inflation.

"This will ensure that inflationary expectations remain anchored while setting inflation on a firm downward path towards the 5% mid-point of the target range. Therefore, the MPC decided to raise the Central Bank Rate (CBR) to 12.5%," said Thugge in a press release on Tuesday, December 5.

However, they disputed the move, with the majority saying it will only add pressure to the already overburdened cost of living.

What Kenyans said about CBK's increase in interest

@p_m_mutua wrote:

"10.5% t0 12.5%; 200 basis points just like that... This will be a hard pill to swallow..."

@leahgatonye cried out:

"Just like that, Kenya Kwanza has wiped out the middle class."

@AbdijamaaAbdi explained:

"This is very wrong, Kenya's inflationary pressures are not caused by cheap credit but rather global and import related, especially fuel, this will only drive up cost of credit and slow the economy even more, furthermore Kenya's interest rate is already one the highest in the world."

@jkyuli said:

"Now waiting for @StanChartKE to send their monthly email notifying us about revising their interest rates to 17% or more… personal loans are now becoming very expensive, we are officially heading back to pre-capping rate days before 2016 when interest rates were over 22%."

@njoguz claimed:

"So CEOs survey revealed tempered optimism due to increased cost of doing business and the MPC decided to increase CBR meaning even more squeeze on business."

@gordon_Omollo1 said:

"You have just denied the majority access to credit, but given it to few individuals with access to the coffers."

@gff_kim noted:

"The 200 point movement is brave but necessary, especially with how previous increases have not tamed credit demand hence the stubbornly high core inflation......Our Interest rate increases have not been in tandem with global/Fed increases."

@TheGunnersPlug asked:

"Who is this who wants banks to have increased bad loans and Kenyans auctioned?"

Why Kenyans could no longer get loans

In a previous interview with TUKO.co.ke Daniel Kathali, an economist and lecturer at Mt. Kenya University, explained that ordinary Kenyans can't get bank loans at the base lending rate due to risk factors.

"I doubt you can get a loan at the base lending rate because basically, the interest rate is the cost of borrowing incurred by the borrower and a higher interest rate means more profit for the banks. That's why borrowers have to pay the bank base lending rate plus a margin calculated by the bank based on the borrowers' credit risk," said Kathali.

Kathali noted that high interest rates discourage borrowers due to increased repayment rates.