The Central Bank of Kenya. File | NATION 
More pain is in store for borrowers after the Central Bank of Kenya on Thursday announced yet another increase in its indicative lending rate. 
Through the Monetary Policy Committee, its policy advisory organ, Central Bank of Kenya raised the CBR by 150 basis points from 16.5 per cent to 18.0 per cent after inflation defied previous interventions to hit 19.72per cent last month.
CBK chose to contain the runaway inflation at the expense of economic growth and cost of borrowing.
“…Since inflation continued to increase in November... the committee decided to revise upwards the Central Bank Rate by 150 basis points from 16.5 per cent to 18.0 per cent,” read a statement signed by CBK Governor Njuguna Ndung’u after Thursday’s MPC meeting.
Last month, CBK surprised the market with a 4.5 percentage point rise to 16.5, triggering a wave of interest rate increase by commercial banks, with some charging as high as 30 per cent for personal loans.
The effect, though touted as short term, has permeated to long term borrowing, with Housing Finance announcing a mortgage rate increase last week.
Already, signs of hard times for borrowers have started to kick in with the regulator disclosing that “several banks had commenced discussions with borrowers with a view to restructuring loans and refinancing arrangements to avoid any threat of default.”
The CBK has been caught in a tricky position of raising its key lending rate to rein in inflation and exchange rate turbulence without hurting the costs of government borrowing and stifling economic growth.
The shilling looks to be benefiting from the move, gaining to close trading at 89.50/80 on Thursday.
“The Kenya shilling has been appreciating strongly and private sector credit growth, which had been observed to be exacerbating demand pressures on inflation, eased in October 2011. These developments supported analyses showing that the tight monetary policy stance adopted by the committee is achieving its desired results. However, the response with respect to inflation is yet to be felt,” the MPC statement said.
The rate rise is set to renew debate over failure to respond to the market in good time in what has caused borrowers sleepless nights as banks raise their base lending interest rates to an average of 24 per cent.
Some analysts had expected the Monetary Policy Committee (MPC) to leave rates unchanged at 16.5 percent, despite inflation reaching nearly 20 per cent in November.