Recent decisions by central banks in East Africa reflect a departure from the previously synchronized monetary policy regime, as each country grapples with its unique set of economic challenges. The Central Bank of Kenya (CBK) surprised markets with a 50-basis-point increase in the policy rate, signaling a shift towards tighter monetary policy to combat inflation and stabilize the exchange rate.
Kenya’s move follows similar actions in Malawi, Egypt, Ghana, and Mozambique, indicating a divergence in monetary policy across the continent. With inflationary pressures and currency depreciation remaining concerns, central banks are adjusting interest rates to address these issues.
Meanwhile, Uganda’s Monetary Policy Committee opted to maintain its policy rate amidst rising headline and core inflation. Despite stable demand conditions and easing global pressures, Uganda remains vigilant against inflation risks, particularly in light of potential disruptions in global commodity prices and financial markets.
In contrast, the Bank of Tanzania recently adopted an interest-rate based monetary policy framework, setting its main interest rate at 5.5 percent. This forward-looking approach aims to balance inflation containment with economic growth objectives, signaling a strategic shift in Tanzania’s monetary policy approach.
Similarly, the National Bank of Rwanda has maintained its Central Bank Rate at 7.5 percent to address inflationary pressures and support economic stability. With ongoing economic challenges and uncertainties in the global landscape, central banks in East Africa are navigating a complex environment to safeguard their respective economies.