Kenyan consumers bear the brunt of June interest rate hikes

By Steve UMIDHA

Kenyan households are struggling to make ends meet and are just digging themselves a deeper and deeper hole to finance their existence.

In its economic prediction for the second half of 2023, FXPesa Market Outlook Report, suggests that better days are faint with the public sentiment on the high cost of living only getting louder by the day.

Kenya’s central bank interest rate hikes in the month of June may have controlled inflation, but its impact, coupled with depreciating value of the Shilling, poor NSE stock performance, and a mountain of taxes “has created a bad economic environment”, according to FXPesa’s markets analyst Rufas Kamau.

“This has led to foreign investor flight while local investors are looking for opportunities offshore. It has also created a bad political environment as the opposition has increased calls for demonstrations and civil disobedience arguing that the cost of living is too high,” notes Kamau while announcing the firm’s economic forecast for the country.

Indeed, data by the country’s data office – Kenya National Bureau of Statistics (KNBS), show that the annual inflation rate in Kenya eased marginally to 7.9 percent last month, down from 8 percent in the prior month but still above the central bank’s preferred range of 2.5 percent to 7.5percent.

The Central Bank of Kenya (CBK) has raised its rate nearly four times – from seven percent in May to 8.75 percent in November, with its June 26 meeting being the highest seen thus far.

The banking regulator lifted the CBR by one percentage point at the surprise MPC meeting to 10.5 per cent from 9.5 per cent, setting the benchmark lending rate at the highest level since July 2016.

The rate of increase was also the highest in nearly eight years since July 2015 when the CBR rose by 1.5 per cent.

That move, the new CBK governor Kamau Thugge, said would put brakes on rising inflation and will ease the cost of living in the coming three months.

That is yet to be seen, with as many Kenyans today struggling to put food on their table, owing to the high cost of basic food commodities that has been made worse by the skyrocketing costs of fuel products.

Projections from the International Monetary Fund (IMF) indicate that tighter monetary policy in the country and globally will enable a sustained slowdown in inflation rates despite the ongoing turbulence in eastern Europe – pitting Ukraine and Russia.

The Nairobi Stock Exchange All Share Index (NSE-ASI) for instance, hit an all-time low and is currently trading at Sh107.19 which represents a 15.89 percent less since the beginning of the year, which led to a massive exodus of foreign investors “as the government has engaged in an aggressive taxation regime that is largely expected to hurt the private sector,” noted Kamau.

Similarly, the Kenyan shilling continues to perform dismally against global currencies, losing 14 percent of its value against the US dollar in the first six months of 2023 having started the year at 123.28 and shooting to 140.50, an all-time low against the dollar.

Foreign investors faced the wrath of that free-fall since their investments were losing in dollar terms.

Such decisions, however critical, often come at a cost to businesses both big and small, according to the CEO of Jijenge Credit ltd Chief executive Peter Macharia.

“Rising interest rates make your business debt more expensive, which means you’ll have to use more cash to cover your interest costs,” offers Macharia.

Adding that, “Depending on your business’s overall financial health and profit margins, you might have less flexibility to invest in long-term growth—or less day-to-day cash flow stability. This has been the case across all lending firms since those adjustments were made.”