“It’s Time To Raise Interest Rates...”

After two years of consistent CBR cuts, the plea to raise them has returned. And the culprit is inflation, fueled by a conflict in the middle east that has no foreseeable conclusion.

Good evening. It’s Brian from The Kenyan Wall Street. Here are our day’s stories…

“It’s Time To Raise Interest Rates…”

By Harry Njuguna

Kenya (CBK) to raise interest rates for the first time since December 2023, not because the domestic economy has overheated, but because the conflict in the Middle East has sent fuel prices surging and pushed headline inflation from 4.4% in March to 6.7% in May. 

The Kenya Bankers Association's (KBA) case is essentially pre-emptive: core inflation remains a modest 2.5%, but second-round effects risk pushing the headline figure toward the 7.5% ceiling that CBK used as a base to cut rates . The timing is awkward as GDP growth has slowed to a projected 4.5% this year, the Purchasing Managers Index (PMI) has sat below the expansion threshold for three consecutive months. Raising rates into a weakening economy is the kind of medicine that cures the fever while making the patient more miserable. The Monetary Policy Committee (MPC) meets on Tuesday next week, and the question is whether the war in the Gulf is enough to change the calculus for a central bank that has spent the better part of two years trying to make borrowing cheaper.

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Banks are willing to lend but are cautious about defaults

By Brian Nzomo

Kenyan banks have more money to lend but sufficient reasons to hesitate, as total assets and deposits rose in the first quarter. However, the industry's gross non-performing loan ratio climbed further to 15.6%, a reminder that the last lending cycle left wounds that have not entirely healed. The trade sector is where the appetite for credit is strongest, with 62% of lenders reporting increased borrowing demand, though the detail underneath that number is less cheerful as businesses are mostly borrowing to manage costs rather than to expand. Real estate is where the caution is sharpest for lenders as 30% of them have tightened credit standards for property borrowers, the highest across all eleven sectors surveyed, suggesting that what was once the favored collateral of Kenyan banking has quietly become its most salient risk. The picture that emerges is of a sector with the capacity to lend more and the memory to lend carefully. 

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OPINION : Energy Shocks, the Green Allocation Paradox, and What it Means for Africa

By Ken Tobiko Oidamae

Every major energy shock in history has done two things at once. It has made the case for clean energy, and it has made fossil fuels immediately more profitable. The 1973 oil crisis, the 2022 Russia-Ukraine war, and today's US-Iran standoff all follow the same script, and the investors who accept both outcomes as simultaneously true have already solved half the puzzle. Africa sits at the sharpest edge of this story. The continent added just four gigawatts of renewable capacity in 2024 while the world added 585, not for lack of sunshine but because financing a solar project in Africa costs nearly double what it does in Europe. The smartest play is to stop picking sides and instead back the infrastructure that every version of Africa's energy future requires regardless of which direction the mix tilts: minigrids, storage, and transmission, the unglamorous layer without which nothing else gets built.

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