Inflation Surges As Cost of Loans Hits Record High - Money Weekly

Happy New Month! We are already 60 days into 2023. Some 62% of Kenyans in the latest Infotrak survey are of the opinion that the country is headed in the wrong direction, chiefly due to high cost of living. How are the first 60 days of 2023 treating you? Are your finances headed in the right direction?

From a rise in inflation owing to the increase of some food commodities, to maize shortage that has Kenyans digging deeper into their pockets, to the cost of bank loans increasing, the last week has quite a lot to unpack.

As we do every Thursday, here's a weekly summary of the top money news from the last seven days that could have an impact on your money.

Kenya's Inflation Rises to 9.2% as Food Costs Go Up

With recent data showing that inflation rose to 9.2% in February as certain food costs increased by as much as 11% from January, Kenyans are entering into March 2023, with a lot of trepidation even as the weathermen predicts depressed rainfall in Kenya's bread basket areas.

This is coming after households struggled with rising living expenses as inflation accelerated through 2022 before slowing for three consecutive months to hit 9% in January.

Tuesday's Consumer Price Index (CPI) report from the Kenya National Bureau of Statistics (KNBS) revealed that, in February, a significant portion of the high inflation was caused by the cost of food, highlighting the agony Kenyans are currently experiencing.

Data from the KNBS indicated that households paid 13.3%  more to put food on the table than they did a year earlier, up from a 12.8% increase in January.

Since food makes up over a third of the average Kenyan family's shopping basket, food generally has the biggest influence on the overall shift in costs.

Vegetables, whose production has been hampered by a protracted severe drought, were the main source of pressure on food costs.

Cabbage, carrots, and sukuma wiki (kales) were among the food commodities whose prices increased at the highest rates, according to the KNBS CPI.

Within one month, the prices of the three commodities increased by more than 11%.

While electricity rates decreased by between 2.9% and 3.7% on various user bands in February compared to January, households also experienced difficulty filling up on cooking gas, whose cost jumped by 4.7% in February.

“Tomato prices also increased by 7.8% compared to January while the prices of fresh unpacked milk increased by 2%,” KNBS stated.

The KNBS also noted that during the month of February, the cost of wheat and maize flour decreased by 2.4% and 2.5%, respectively, while the cost of sugar decreased by 3.2%.

Read Also: Inflation is Your Biggest Enemy in 2023: 6 Smart Ways to Invest Your Money

Maize Shortage Puts Households Under More Stress as Bag Reaches Ksh6,000

Due to a shortage and fierce competition among millers and other organisations, the price of a 90-kilo bag of maize has skyrocketed to Ksh6,000, placing further strain on consumers.

After the government stated that imports would begin arriving on February 6, farmers were compelled to release extra inventories to the market, and the price of the product fell to Ksh5,000 per bag early in February.

The National Cereals and Produce Board (NCPB) which said last week that it had increased the buying price of maize from Ksh5,100 to Ksh5,600, and a shortage as a result of delayed imports, have led to the price hike.

In response to the NCPB's price review, millers have raised the price at which they purchase the produce in an effort to draw in farmers.

Early this month's anticipated maize imports have been delayed, allowing farmers and traders to stockpile the grain in anticipation of price increases.

A bale of maize flour that was once sold for Ksh2,050 is now Ksh2,250, as millers already have increased the price of flour to reflect the rising cost of maize.

The retail price of the essential meal has increased from Ksh180 for a two-kilo packet at the beginning of February to Ksh190 at the supermarket, indicating difficult times for households.

Read Also: Cost of Living: Survival Lessons From 9 Hard-hit Countries

Cost of Bank Loans Has Increased to its Highest Level in 52 months

In response to rate increases by the Central Bank of Kenya (CBK) and rising yields on government debt, the cost of bank loans reached a 52-month high in December.

The average loan rate increased to 12.67% in December from 12.22% in May of last year, when the banking regulator lifted rates for the first time in nearly seven years, according to CBK data.

This might limit corporate investment and make home loans and other loans unaffordable for many people. The average lending rate is at its highest level since August 2018, when it stood at 12.78%.

Lenders are reacting to the CBK's move of September 29 last year to anchor inflation expectations by increasing the benchmark interest rate by 75 basis points to 8.25%.

Currently, the benchmark rate is 8.75%.

The State's demand for domestic borrowing has also increased due to rates on government paper, particularly Treasury Bills that affect the costs of saving.

The 91-day T-bill has increased to a high of 9.65% from an average of 7.8% in June of last year, and is on the verge of crossing the 10% threshold.

According to bankers, rising interest rates on government debt securities are compelling banks to refund substantial sums of money that have been deposited by cash-rich businesses and high-net-worth stakeholders like pension schemes.

Due to the impact of large savers' deposits on loan pricing, this ultimately puts more pressure on lending rates.

When determining the price they will charge a specific customer, banks will typically utilise a base rate, which is typically the cost of funds plus a margin and a risk premium.

Banks are currently evaluating base rates, and many have requested that the CBK increase the risk premium, which might signal the end of the era of cheap credit.

Read Also: Full Guide: All You Need to Know About Personal Loans in Kenya

Safaricom Collaborates with Banks to Curb ATM and Sim Swap Fraud

Six banks have joined Safaricom's SIM-Swap-Check Anti-Fraud service, the company has revealed.

The solution gives banks access to an API (Application Programming Interface) that allows them to find out the most recent SIM card swap for a customer.

Using the information, they can decide if it is likely that a customer's transaction was fraudulent and whether further action is necessary. The approach aims to lower the number of mobile money fraud incidents, which have cost consumers millions of shillings.

In order to assist banks in reducingfraudulent transactions, Safaricom has revealed that it has already signed up six banks for its SIM-Swap-Check Anti-fraud and ATM Vicinity Check solutions.

Safaricom will also offer banks an ATM Vicinity Check solution, which assures that an ATM withdrawal will only be made if the customer making the transaction is nearby the ATM, in addition to the SIM Swap Solution.

Read Also: How to Protect Yourself from SIM Swap Fraud

Government Increases the Women's Enterprise Fund to Ksh13.5B

In an effort to hasten the economic empowerment of women throughout the nation, President William Ruto has announced that the government has tripled the funds available under the Women Enterprise Fund (WEF) from Ksh4.5 billion to Ksh13.5 billion.

With this change, the 97,000 women's groups that currently receive funding from the fund are predicted to increase by up to four times.

Women will be able to borrow money at a rate of 6% annually under the revamped Women Enterprise Fund (WEF), according to the president.

Ruto stated that the new Fund has been upgraded to get rid of bureaucracies and middlemen who restricted the accessibility of the loans during the International Women's Day Celebrations at KICC.

“In the past we used to give the money to intermediaries who then engaged in many processes to disburse the loans. Now you will not have to talk anyone or fill out any forms, you will get the funds instantly,” President Ruto said.

The processing of loans used to take 45 days, but the head of state promised women that beginning of next week, they will be instantly available.

The Hustler Fund's rapid loan access technology will be used to access the redesigned Women Entreprise Fund by dialing *254#.

The Hustler Fund's Individual Micro Loan Program was launched at the same time, to offer affordable loans to informal enterprises according to the President