Analysts at the Standard Chartered Bank expect average interest rates on loans to rise next year in a tightening of monetary policy by the Central Bank of Kenya (CBK).

In a note sent out to newsrooms on Wednesday, the lender sees high import costs and a weakening foreign exchange forcing the CBK’s hand in lifting its benchmark lending rate.

“We are still cautious about the supply disruptions plaguing the market, and some currency weakness because of rising imports as the economy recovers,” the bank stated.

“We would expect monetary policy tightening in 2022, especially if inflationary pressures persist and rise above the target band (2.5-7.5%).”

The CBK has sustained low interest rates on lending by leaving its benchmark lending rate unchanged at seven per cent in the last 11 reviews since April last year.

Data from the CBK shows the weighted average rates for commercial bank loans and advances have remained low, holding steady in and around 12 per cent peaking at 12.12 per cent in August 2021.

At the same time, the CBK lowered the cash-reserve ratio requirement for banks to 4.25 per cent from 5.25 per cent to support additional liquidity to banks.

At its final monetary policy committee meeting for the calendar year, the CBK said its current policy stance remains appropriate in supporting the continued recovery of the economy from the adversities presented by the COVID-19 pandemic.

“The MPC will closely monitor the impact of the policy measures, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary,” the CBK said on November 29.

Unlike other Central Banks, the CBK does not forbode future tweaks to its monetary policy stance.

World over, Central Banks have begun retreating from their accommodative stances to include raising or hints of raising interest rates as most economies seek to mitigate against inflationary pressures.

For instance, on Wednesday, the US Federal Reserve indicated it would begin raising interest rates from next year as the US economy battles persistent inflation pressure.

CBK’s monetary policy stance is largely informed by the direction inflation takes.