The fault is the governor's 120% because he printed loads of Kshs last year and got clever by buying US $ from banks to inject liquidity in the market but resulted to playing with that liquidity in the repo market.

I believe he expected the liquidity would work miracles over night and spur growth of the economy. Unfortunately there are no economic policies supporting our lending model, people took the money and went to buy Plasma Tvs, cars, pay for MBAs and holidays.

Unfortunately Fuel went up and our wheat and maize stocks ran out. These require dollars to buy and suddenly the system was struggling for dollars since it sold them to CBK. The banking system started struggling for dollars. The economy hardly expands if the money lent is for consumption more so that which requires imports, therefore tax revenue hardly grew, CBK forgot to caution GK on its expenditure and off course we needed to import maize and wheat suddenly the extra USD CBK was stock piling was used up.

What I don't understand is if inflation is supply side driven, why raise rates, isn't it more punitive to do so because raising rates is meant to remove surplus liquidity from circulation and it assumes people have extra cash which will follow higher rates to the bank vaults. However with expensive food and energy, people hardly have money left after spending on the expensive food and energy. So which liquidity is Prof going after, the little the banks are about to lend or? Is he suggesting we save on eating, lighting our homes and walk to work so that we can bank the savings????

Either way they need to drop the rates to 9%. Already the Unions are pushing for extra wages while companies are not far commencing right sizings......

any word from mpc.I'm almost suffocating :)

it feels like the olden times of price control when we waited for price of sugar to be read in the budget

Any loosening from MPC is nothing but suicide.

My friend sorry to say this but this is not Namibia..

The blunt truth is that Kenya is a third world state with a miniscule GDP and a very small ratio of financial flows to GDP..

In other words we are broke as hell and we have other more serious factors influencing the chaos in the economy more than the inferior factor of household demand as presented by Ndungu..

Demand side monetary economics will never solve any problems in this country as long as the above facts remain...

Very interesting discussion and as always @ Kizee, kindly keep us posted on the new CBR(u've always done so in the past)
I still think a punitive rate for cheap Japanese cars, plasmas and what have u consumption loans needs to be in place!Like say 70% to keep Wanjiku away from those cheap cars!After all, she's used to a megarider and the bigger picture is that our fuel bill, which for now accounts for a third of the imports will come down.
And as Scubidu asked a few weeks ago in another thread, whats the big deal with USDKES at 100?
Exporters will smile, Sasini & WTK will pay me good divs and consumption imports by Wanjiku will be discouraged!
Let the Market forces operate Prof & may u be given powers to dictate things at Treasury!

@mainat. I agree. It's premature to raise now unless they know something we don't and the house is still on fire (every dose needs time to take effect). This shock therapy is not psychologically healthy. At 18% it's neither here or there. Not even a real policy rate with inflation at 19%. It'll create uncertainty that the last policy is yet to take effect (especially when supply side inflation is largely expected to drop early next year and fx has corrected somewhat). I usually don't like a witch-hunt, but I can so smell IMF's hand in this.

My reaction


Basically to get out of this trap they have to force a mini recession,they need to reboot the system,inflation has gone viral

Loose monetary policy has led to this crisis,goodos CBK for abandoning it, the economy needed to be cooled,a bubble would have been worse.

interesting proposition

Totally Not true when you are coming from a very low base my friend like the way kenya is..