Pain for borrowers as key lending rate is raised

It will be Pain for borrowers as key lending rate is raised highest in seven years. You will now pay more to maintain your loan or apply for a new one.
The persistent increase in prices of goods and services, as well as the elevated global risks and their potential impact on the domestic economy, were cited as some of the main reasons for tightening the money supply by the Monetary Policy Committee, which held its first meeting on Monday, June 26, under the chairmanship of the recently appointed CBK governor Kamau Thugge.
However, it is anticipated that the reduction of liquidity will have a detrimental impact on both individuals’ and businesses’ access to credit, with borrowers likely to experience financial hardship due to rising loan costs.
Additionally, rising borrowing costs often reduce investment, employment, and consumption.
“The MPC observed the persistent inflationary pressures, the rising global concerns and their possible impact on the local economy, as well as the increasing risks to the inflation outlook. The MPC therefore came to the conclusion that there was room for additional tightening of the monetary policy in order to stabilize inflation expectations,” according to a statement released by MPC Chairman and CBK Governor Kamau Thugge following the meeting.
Therefore, “The Committee decided to raise the Central Bank Rate from 9.50% to 10.50%.”
The most recent increase is the largest CBR in seven years and comes as the nation struggles with rising prices for goods and services as well as a declining shilling. In July 2016, a similar level for the main lending rate was chosen.
The increase is the most tightening in a single MPC meeting since July 2015 or in the previous eight years, and it is expected to cause anxiety among borrowers due to the surge in non-performing loans.
A 1.50 basis point rate increase was made at the time by the CBK.
The Thugge-led CBK, on the other hand, believes that the increase in the policy rate will assist the nation fend off inflationary pressure brought on by a stronger currency, rising oil costs, and the economic repercussions of Russia’s invasion of Ukraine, which have reduced food supply.
The government of President William Ruto is facing both an economic and a political challenge as a result of the persistent depreciation of the national currency.
On Monday, the Shilling reached a record-low new low of Ksh140.4412 versus the US dollar, paving the way for the expensive importation of items including vehicles, electronics, farm inputs, used clothing, and power amid a shortage of US dollars.
Key food item costs have increased dramatically over the past few months, putting further strain on cash-strapped people that are still feeling the financial effects of the Covid-19 outbreak.
The Kenyan statistics office is scheduled to release an update on inflation numbers later this week. Politically sensitive price pressures are anticipated to persist in the face of a persistent worldwide increase in food costs and an increase in different taxes that are anticipated to have an impact on consumer goods.
The Kenya National Bureau of Statistics previously stated that the inflation rate, which is a gauge of yearly fluctuations in the cost of living, topped 8% in May from 7.9% in April, further pressuring consumers.
The Thugge-chaired-MPC stated that it will carefully watch the effects of the policy changes as well as changes in the national and international economies, and it is prepared to take additional steps as needed.
The depreciation of the shilling has raised concerns about new inflationary pressure, which has caused the administration political problems.