Monetary Policy Under Fire: Interest Rates, Inflation & the Middle Class Squeeze

When the Central Bank of Kenya raised its benchmark rate to combat post-pandemic inflation, the textbook prescription was clear: tighten monetary conditions, reduce demand, stabilise prices. But the pass-through to commercial lending rates has been asymmetric and brutal. Mortgage costs surged. Working capital financing for SMEs became unaffordable. Meanwhile, inflation in food and energy — driven by supply-side shocks — barely responded to the rate hikes. This episode examines the transmission mechanism, the winners and losers of the current rate environment, and what a better-calibrated policy might look like.