Prior to the MPC meeting on Wednesday 5th of October, I had suggested that a rate hike wouldn't be necessary as it is not a key-rate but rather a signal rate. My view is that the CBK want to take control of the process before parliament opens lest we witness currency controls. Over the last 2-3 years we have witnessed fuel price controls and food controls in the face of inflation hikes that arose from supply shocks. It could be a political move to prevent politicisation of the currency.

The economic argument for such a move is that in times of sustained supply shocks, like we are witnessing, it is important to tighten so as to avoid the "second-round" effects of a supply shock. These second round effects are mainly persistent inflationary expectations as well as wage pressures that lead to further inflation. Therefore, central bankers faced with persistent supply shocks decide to forego growth and control inflation by tightening. However, how can the CBK claim that they're tightening while the Cash Reserve Ratio is at such low levels? (4.75% monthly and 3% weekly). My guess is that its plain politics.

I would ask any economist to kindly explain to me how a higher CBR will allay supply driven inflationary pressures and strengthen a weak currency. (I'm talking about the nuts and bolts of a CBR rate hike - inflation - a weak currency). For centuries now a number of people have wrongfully confused economics with politics, I think this affliction is well and truly alive.