Just days after, the inflation rate hit a new high since February 2020. The Central Bank of Kenya (CBK) declares it will react to contain inflation even as it sounded the alarm over rising pressures due to high prices of crucial commodities.
This comes after the president of CBK, Peter Njoroge, announced it would not reduce its lending rates. However, he admitted that as far as controlling imported inflation is concerned, the Central Bank of Kenya cannot do anything since global price trends drive this.CBK said it would take policy measures, including constraining domestic demand, to avoid a scenario where prices of commodities continue surging. It added that it has practical tools to tame inflation driven by high fuel and food prices.
“The principal drivers where the inflation is coming from are things that don’t react to monetary policy. That is really the point. No matter how much we change or tighten monetary policy, it won’t affect the imported price of Murban oil. The prices will be passed on to consumers in the usual way. That is the first round effect,” CBK Governor Patrick Njoroge said Wednesday.
In a statement following the Monetary Policy Committee (MPC) meeting on Tuesday, CBK warned that Kenyans were headed for more challenging times. It named high Murban crude oil cost, weather and supply chain bottlenecks as inflation’s leading drivers. “The second round effect is when that item (the price of fuel) then leads to an increase in other prices such as transportation and electricity. We can use monetary policy to constrain domestic demand, and by so doing, there will be less impact on inflation. It’s demand-side management. From the point of view of the economy, it’s the second-round effects that we can and intend to react to,” Dr Njoroge said.
The governor spoke speaking in an address in Nairobi following an MPC meeting on Tuesday. He declared CBK would withstand its mandate to ensure economic price stability, implying the bank is acting. He said some measures would take time, and CBK had the tools to bundle inflation.
With the latest rise in the cost of living, the most brutal hit are small businesses, and small households as the cost of cooking hit a concerning all-time high as Kenyans are expected to pay high prices in the coming days for the gas and cooking oil.