CBK keeps crucial lending rate unchanged at 9 percent


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

The Central Bank of Kenya (CBK) has kept its key lending rate to banks at 9 percent unchanged since July 2018.

CBK’s Monetary Policy Committee (MPC) pointed to the continued stay of a stable economic environment across the first three months of the year as the main reason.

Inflation has continued to ease owing to a combination of a reduced import wage bill anchored primarily on sustained low prices for oil and stable food and electricity prices.

In February, for instance, inflation fell to 4.1 percent from 4.7 percent in January as non-food and non-fuel related inflation remained below 5 percent.

“Overall inflation is expected to remain within the target range in the near term, in part due to adequacy of food supplies and lower electricity prices with the reduced usage of expensive power sources,” read part of the MPC statement.

The foreign exchange market has also remained stable supported largely by Kenya’s improved export value and consistency in remittance growth at the start of the year.

The decision by the CBK, which is now closely tied to lending to the real economy under the near 2-year old interest capping regime, means Kenyans will continue to enjoy cheaper credit from commercial banks at a maximum of 13 percent as has been the case over the last 8 months.

The CBK has however warned of risks to the improved economic outlook to include jitters from the delayed onset of long rains in the country and growing uncertainties in advanced economies which has led to increased volatility in the global financial markets.

“Global growth is showing signs of weakening in 2019, weighed down by trade tensions between the U.S. and China, the slower growth of the Chinese economy, uncertainties over the nature and timing of Brexit, and the pace of normalization of monetary policy in the advanced economies,” the MPC noted.

The stay of the CBR at 9 percent over the last one year has been initiated by parliament’s hold on interest earnings by commercial banks at 4 percent above the rate charged by CBK, with the MPC previously raising concerns on its policy intervention effectiveness from tying down the rate.

The CBK also made note of the recent High Court ruling which deemed the rate-capping provisions under section 33 of the Banking Act as unconstitutional.

“The interest rate caps severely constrain the formulation, conduct and effectiveness of monetary policy. Further, these interest rate caps have hampered access to credit by growth sectors, particularly micro, small and medium enterprises (MSMEs).”

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Story By Kepha Muiruri
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