The Central Bank of Kenya has delivered bad news to Kenyans who are are used to borrowing loans from banks. The regulatory bank Monetary Policy Committee (MPC) revised lending rates from 8.25 percent to 8.75 percent. This is an increase by 0.50 percent of interest rates increase.
This is happening despite efforts by government to ensure that the interest rates are reduced to spur economic growth through investment. The latest move by the Central Bank is obviously a move into that is not favorable at all especially when investment is put to consideration but a necessary move all together.
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The Central Bank has however cited inflation as the major reason why interest rates had to go up. It's a fact that matters interest rates are generally affected by inflation for the higher the inflation, the higher the interest rates.
Inflation affects interest rates in the sense that, increase in inflation forces the lenders to increase rates to increase their future purchasing power. The lender will always seek to increase rates because of the time value of money factor.