| dc.description.abstract | The recent hike of base lending rate by the Central Bank of Kenya through the Monetary Policy Committee (MPC) from 10.5 percent to 12.50 percent will have far-reaching implications, especially for everyday Kenyan citizens, small business owners, and micro, small, and medium enterprises (MSMEs) during this Christmas and New Year holiday season and beyond.
This increase in the MPC lending rate leads to higher interest rates for loans, affecting individuals and businesses dependent on borrowing for various purposes, such as home loans, business expansion, or daily operations. Inflation has paused at 6.8 percent, which is above the Central Bank of Kenya (CBK) preferred rate of 5.0 percent. This means households are not cutting back on the demand for goods and services despite high prices.
How are Kenyans financing consumption when taxes and borrowing are at an all-time high? In 2024, more financial challenges will follow in the consumption patterns of Kenyans with the repayment of Eurobond.
For MSMEs, this translates into higher operational costs, potentially increasing the prices of their goods and services, while ordinary citizens face more expensive personal or business loans.
Despite these high interest rates, there has been notable growth in private sector loans, suggesting strong demand for borrowing, for business investment, or coping with rising costs of living. However, borrowing is likely to become costlier, which might slow down this growth.
High inflation erodes purchasing power, making everyday expenses for goods and services more expensive for the average Kenyan. The weak currency exacerbates this issue by making imports costlier and contributing to inflation. | en_US |
