Analysts project loan rates could rise due to growing inflation

The Central Bank could be forced to raise its benchmark lending rate to 10 per cent before the end of the year in order to tame rising inflation.

This could trigger an increase in commercial banks’ lending rates.

According to analysts at Renaissance Capital, inflation is likely to surge to 8.9 per cent from 6.31 per cent currently before the end of this year, prompting the CBK to raise its indicative lending rate to 10 per cent from 8.5 per cent to contain further upsurge.

“We are forecasting inflation of 8.9 per cent at year end 2015. We are also upwardly adjusting our 2015 rate to 150 basis points (from 50 basis points previously), implying a policy rate of 10 per cent at end of 2015,” the analysts said on Friday.

Inflation rate of 8.9 per cent would be above the government’s medium term target of between 2.5 per cent and 7.5 per cent.

Dry weather, which was experienced last month pushed up the cost of living in the period to a five-month high of 6.31 per cent raising concern that further upsurge could negate efforts to bring down lending rates.

Dry weather pushed up the cost of milk and potatoes. “If the inflation rate increases, the general cost of living will go up. As a result, most of the poor households will not able to afford a decent meal,” said Fred Ikana, an analyst at Centsavvy Investments.

In January this year, monthly inflation levels hit a 19-month low of 5.53 per cent owing to a slump in the price of crude oil in the international market. The cost of crude fell to lows of $50 per barrel earlier in the year.