The Monetary Policy Committee (MPC) of the CBE decided to maintain the overnight deposit rate, lending rate, & the main operation rate at the levels of 8.25%, 9.25 % & 8.75%, respectively, in its meeting on Thursday. The MPC also maintained the discount rate at 8.75%.
Who is affected🤷: The decision to hold rates comes mainly off the back of the rise in the annual inflation rate in August to 5.7%, up from 5.4% in July. The rise in inflation had come off of the rise in annual food inflation, which had risen for the fourth consecutive month. On the other hand, the annual inflation rate was offset by the fall in annual non-inflation to 5.3% in August from 5.7% in July. The MPC decided that holding interest rates are consistent with achieving the target inflation rate of 7% (± 2 percentage points) on average during Q4-2022.
How are interest rates & inflation rate related🤔: Generally, interest rates and the rate of inflation tend to have an inverse relationship. For example, as interest rates decrease, more people are able to borrow more money. This results in consumers having more money to spend, which causes the economy to grow and inflation to increase. And vice-versa, as when interest rates rise, people tend to save more & spend less, which slows down economic growth & decreases inflation.
