The Central Bank of Kenya's Monetary Policy Committee (MPC) meets on Wednesday amid rising pressure on investment spending and real money supply growth due to high-interest rates.
In June, it raised the central bank rate (CBR) from 9.5 percent to 10.5 percent— the highest point in nearly seven years. The decision may have saved the economy from an inflation crisis.
Inflation — a measure of the cost of living over the last 12 months— has eased to 7.3 percent from 7.9 percent.
This is within the band of 2.5 percent to 7.5 percent preferred by the CBK. But analysts are warning about the risks of the high interest rates to the economy, especially as they continue to trigger a downshift in credit growth.
Commercial banks, for instance, have taken a cautious approach to lending as they monitor their non-performing loans.
Wednesday's MPC meeting comes against the backdrop of a report showing that business conditions continue to deteriorate as a result of declining cash flows.
Whatever decision the MPC takes, it should avoid worsening the credit crunch.
