Kenya: Rapid Rate Hikes to Hurt Emerging Markets – CBK Governor

Nairobi — CBK Governor Patrick Njoroge has warned that rapid policies put in place by advanced economies could hurt emerging markets’ growth amid global inflation.

Njoroge who spoke on Bloomberg Television in New York noted that rapid decisions such as the US Fed rate hike could see things remain tough for longer than expected for emerging markets such as Kenya.

“The policies being adopted in advanced economies such as rate hikes are freezing us out of the financial markets meaning it may be tougher to borrow even as inflation bites,” Njoroge said.

He noted that he held a meeting with Federal Reserve Chair Jerome Powell to have the US Fed consider putting more weight on the implication of its policies on emerging market countries.

“We need support from advanced economies, to make sure emerging markets are not left on their own,” he said.

Despite this, Njoroge noted that Kenya and other emerging markets have shown remarkable resilience despite global shocks, remaining on a growth curve.

He noted that even with the US Dollar being at the highest level in 20 years, Kenya’s flexible exchange rate regime has helped us to adjust with the shock.

Kenya’s shilling weakened on Thursday due to increased dollar demand from oil importers and a strengthening of the dollar globally.

The Central bank of Kenya quoted the local unit at 120.55 on Wednesday, compared with Wednesday’s close of 120.30.

Traders said the shilling’s latest record low was partly linked to the US Federal Reserve hiking its benchmark interest rate by 75 basis points on Wednesday, which has lifted the dollar globally.

Despite this, Njoroge remained positive that the shilling will remain strong due to the good policies even as the market forces linger.

“Our monetary policy is directed on price stability, and even as inflation continues to surge we will remain with our policies despite a change in administration,” he said.

Njoroge noted that the Monetary Policy Committee is scheduled for next week adding that whatever decisions they will make will be data-driven and will have a stabilizing effect to the economy.

The US Federal Reserve raised its key interest rate by a substantial three-quarters of a point for a third straight time on Wednesday, an aggressive pace that is heightening the risk of an eventual recession.

Other advanced economies such as the United Kingdom, Norway, Swiss have also raised their bank rates in a bid to combat global inflation.

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