Rising fuel prices hand Central Bank Kenya a fresh inflation headache

The Central Bank of Kenya in Nairobi

By Business Daily Africa

Soaring fuel prices have handed the Central Bank of Kenya (CBK) a new price stabilisation headache ahead of its key policy rate meeting on Tuesday.

International oil prices have continued to rise in recent weeks, driven primarily by tight supply and resilient demand.

Murban oil prices, for instance, rose to $97.35 (Sh14,439.30) per barrel as of Thursday last week from $95.67(Sh 14,190.12) previously.

Pressure from rising global oil prices has already reflected locally with the Energy and Petroleum Regulatory Authority (Epra) implementing a sharp upward adjustment of local pump prices mid-last month.

While the apex bank has been widely expected to leave the Central Bank Rate (CBR) unchanged at 10.5 percent, higher pump prices are seen to be exerting pressure on headline inflation with consumer prices having ticked up slightly to 6.8 percent in September from 6.7 percent in August.

“Amidst a slight slowdown in inflationary pressure in August, there are risks to inflation rising in coming months driven by the upward adjustment in fuel pump prices, depreciation of the exchange rate, and the impact of forecasted heavy rains on food produce,” said Kenya Bankers Association in a research note last week.

While the banking sector lobby has called for a moderate tightening in monetary policy, analysts expect CBK to leave its benchmark interest rate unchanged.

“We expect the MPC to maintain the benchmark rate at the current 10.5 percent with a stable outlook for the economy. We anticipate that headline inflation will remain under pressure and within CBK’s upper target in the short term. We expect that the economy will continue to be constrained by high global commodity prices and the prevailing inflationary pressures,” analysts at AIB-AXYS Africa said.

Read: Inflation hits 8.5pc as food, fuel prices surge

Analysts at Sterling Capital also expect rates to hold adding the impact of the tightening of monetary policy in June 2023 is still being transmitted into the economy.