Here are our views on the news making headlines today for Kenya:
CBK hits borrowers hard to save shilling. The increase in the CBR from 10 per cent to 11.5 per cent also portends a possible rise in the cost of funds for commercial banks, setting the stage for another possible jump in the KBRR in January.
Our View: We expected the CBR to be increased to support the weakening shilling which fell below KES 100/USD mark yesterday and this move clearly indicates CBK’s focus is to contain future inflationary pressures and further weakening of the shilling. Our main concern however remains the huge current account deficit which will continue to pressurize the shilling, exacerbating inflation rates above the government targets. For inflation to be contained at low levels there needs to be a corresponding growth in production. This means that a lot of the lending should be targeted towards improving productive capacity of manufacturers rather than creating purchasing power for consumer goods.