Banks and market analysts have differed on the CBK benchmark interest rate decision as calls to raise and hold the key rate emerge amid a jump in domestic inflation.
The Kenya Bankers Association (KBA) sees an increase in the benchmark rate as a decisive move to anchor inflation expectations while analysts mostly see a raise in the Central Bank Rate (CBR) as premature.
The rising domestic inflation rate, which topped 6.7 percent in May from 5.6 percent previously on the compounding effects of higher fuel prices is expected to influence the direction taken by the CBK monetary policy committee (MPC) on Tuesday.
KBA says inflationary pressures have re-emerged from the oil supply shock, raising the expectation for general price increases in the economy, necessitating the MPC to provide a cushion.
“A timely upward adjustment of the CBR will effectively anchor inflation expectations and support price stability in the medium term,” KBA said in a note.
Overall inflation rose to a 28-month high of 6.7 percent in May, from 5.6 percent in April and 4.4 percent in March.
The higher consumer prices have left inflation on the brink of reaching the 7.5 percent ceiling, which would warrant interventions by the CBK to maintain price stability.
Analysts at the AIB-AXYs Africa say they expect a soft CBR increase, pushing the rate up from 8.75 to nine percent.
“We expect the committee (MPC) to increase the CBR by 25 basis points, marking a shift towards a more cautious monetary stance following the acceleration in inflation,” the analysts said in a note.
Proponents against a June 2026 benchmark rate increase say an adjustment would be premature at present.
Contrarians argue that a rise to the benchmark rate may not necessarily arrest inflation, noting the shock has emanated from an external sector.
The proponents note that the inflation rate remains anchored between the target of 2.5 and 7.5 percent while the shilling remains largely unchanged in its trade against the dollar.
