State subsidies help spare borrowers from costly loans

Fuel inflation rose to 10 per cent in June. [Boniface Okendo, Standard]

"Nevertheless, this increase was moderated by measures implemented by the government to stabilise fuel prices, lower electricity tariffs, and subsidies on fertiliser prices. Additionally, the recent waiver of import duties and levies on white maize, the subsidy on retail prices of sifted maize flour, and the recent reduction in VAT on LPG (liquefied petroleum gas) will further moderate domestic prices," said CBK Governor Dr Patrick Njoroge in a statement following the meeting.

The government recently announced a maize subsidy programme that is expected to see the retail price of a two-kilogramme packet of maize flour drop by half to Sh100.

Additionally, the National Assembly passed a law slashing by half the 16 per cent value-added tax on cooking gas, a move that will ease the cost of living for many families.

CBK in May raised the CBR rate - rate at which it lends to commercial banks from seven per cent for the first time in nearly seven years.

The hike was on the back of sustained rises in the cost of living and signalled expensive loans for banks' customers.

In retaining the CBR at 7.5 per cent following MPC's meeting, CBK said several developments since May are expected to result in a drop in the cost of living.

Food inflation increased to 13.8 per cent in June. [File, Standard]

"The committee noted that its action of tightening monetary policy in May 2022 was timely in anticipating emerging inflationary pressures, and its impact was still transmitting through the economy. This action was subsequently complemented by an additional package of fiscal measures by the Government to moderate the prices of specific items," said the committee.

"Additionally, the committee noted that international commodity prices, particularly oil, wheat and edible oils had begun to moderate. These developments are expected to ease domestic inflationary pressures in the near term. The MPC, therefore, decided to maintain the Central Bank Rate (CBR) at 7.50 per cent."

Depressed rains have resulted in a reduced supply of maize, while global supply disruptions have also seen the cost of cooking oil and wheat go up. Local fuel and cooking gas prices have consistently increased over the last year owing to higher international prices.

"This increase (in cost of living) was moderated by measures implemented by the government to stabilise fuel prices, lower electricity tariffs, and subsidies on fertiliser prices. Additionally, the recent waiver of import duties and levies on white maize, the subsidy on retail prices of sifted maize flour, and the recent reduction in VAT on LPG (liquified petroleum gas) will further moderate domestic prices," said MPC.