CBK cuts benchmark lending rate to 9-year low

The Central Bank of Kenya (CBK) has cut the benchmark lending rate to 8.25 percent, being the lowest in nine years even as banks remain divided over the direction of price of loans.

Governor Patrick Njoroge announced the cut on Monday, lowering it for the second straight time of Monetary Policy Meeting (MPC). The previous meeting in November last year had cut the Central Bank rate (CBR) to 8.5 percent from nine percent.

“The Committee assessed that the effects of the lowering of the CBR in November 2019 continued to be transmitted in the economy, but also noted that there was room for further accommodative monetary policy to support economic activity,” said Dr Njoroge.

The last time the CBR was below 8.25 percent was in September 2011 at seven percent before climbing to double digit in the month that followed.

The latest cut marks the second one in a space of three months, coming after the removal of interest rate capping laws that had denied banks free hand in pricing the loans.

The cut would have seen the maximum price of commercial loans automatically fall to 12.25 percent in the era of rate cap.

However, this is now not guaranteed given the caps were lifted in October last year, with several banks saying they will be relying on the risk profile of a customer to price loans.

MPC noted that inflation expectations remained well anchored within the target range and that the economy continued to operate below its potential level. Further, the committee observed that there was tightening of fiscal policy.

“The MPC will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary,” added Dr Njoroge.

Private sector credit grew by 7.1 percent in the 12 months to December 2019 compared with 6.6 percent recorded in October.