CBK retains lending rate at 9 percent


Central Bank of Kenya
File image of Central Bank of Kenya. PHOTO| COURTESY

In Summary

  • Inflation, a factor heavily anchored on the pricing of food and fuel essentials has held within the prescribed 2.5-7.5 percent range despite soaring to an 18-month high of 6.6 percent in April.
  • Forex Exchange reserves which informs a key health checker of the economy now stand at a record Ksh.10.1 billion, a figure representative of an improved 6.4 months cover, an adequate buffer against short term shocks in the foreign exchange market
  • The emergency lender expects the roll-out of innovative products targeted at micro, small and medium enterprises (MSMEs) to ease concerns on private sector credit.

Central Bank’s Monetary Policy Committee (MPC) has for the sixth time running kept the effecting lending rate at 9 percent signaling a wait-and-see digest of the prevailing macroeconomic environment.

In a statement issued on Monday afternoon, CBK attributed the subsequent hold of the crucial rate to the optimum performance of the general economy amidst volatility jitters both internally and externally.

Inflation, a factor heavily anchored on the pricing of food and fuel essentials, has for instance held within the prescribed 2.5-7.5 percent range despite soaring to an 18-month high of 6.6 percent in April.

“The Committee noted that inflation expectations remained well anchored within the target range, but there is need to remain vigilant on possible spillovers of recent food and fuel price increases,” said CBK.

While the external environment has been defined over the last month by the re-awakening trade spate between the US and China, which confirms fears of a global economic slowdown in 2019, Kenya has in the inter-mediating time remained well shielded from the tiff.

This was informed most recently by the successful issuance of a Ksh.210 billion (2.1 billion USD) Eurobond earlier this month to reaffirm of the sustained investor confidence in the Kenyan economy.

Forex Exchange reserves, which inform a key health checker of the economy, now stand at a record Ksh.1 trillion, a figure representative of an improved 6.4 months cover, an adequate buffer against short term shocks in the foreign exchange market.

The CBK has been quick to reassure of private sector credit growth interventions into the near term, this even as the flow of credit to the crucial economic sector improved to 4.9 percent in 12-months to April from a lower 4.3 percent growth rate in March.

CBK expects the roll-out of innovative products targeted at micro, small and medium enterprises (MSMEs) to ease concerns on private sector credit.

“These products are expected to drive lending to this sector which has previously been constrained of credit. The Committee looks forward to an assessment of the initial impact of these products,” the CBK added.

Stawi — an algorithm based mobile-loan application — has been the initial intervention to credit flow to the sector, enabling the disbursement of loans to MSMEs at an effecting 9 percent lending rate per year.

The flow of credit to the private sector has effectively been CBK’s thorn in the flesh ever since the enactment of the interest rate cap law in September 2016 which led to the sudden turn of funding from the perceived risky segment.

While the Central Bank has had the leeway to drop the Central Bank Rate (CBR) further down from the prevailing rate, the lender of last resort has held back from the adjustments pointing to the risk of perverse outcomes to such a move.

The 9-percent rate is expected to hold to the next MPC meeting at the end of July 2019.

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Story By Kepha Muiruri
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