CBK leaves benchmark lending rate at 7 percent

The Central Bank of Kenya (CBK) has retained the benchmark lending rate at seven percent breaking the recent cycle of cuts to support the economy.

In its post Monetary Policy Committee (MPC) statement issued on Wednesday, the bank noted recent monetary policy measures have had the desired effect in the economy.

“The Committee noted that the policy measures adopted in March and April were having the intended effect in the economy and are still being transmitted. The MPC concluded the current accommodative monetary policy stance therefore remains appropriate,” noted CBK.

In April, the reserve bank cut the base lending rate by 0.25 percent following up a similar marginal adjustment in March which also so the cash reserve ratio (CRR) trimmed to 4.25 percent from 5.25 percent for the first time in nearly a decade.

The policy measures were aimed at improving the financial system’s liquidity as the CBK sort to prevent the Covid-19 pandemic from breaking out into a full blown economic crisis.

Consequently, private sector credit in April rose to nine percent through 12 months from a 44 month high rate of 8.6 percent in March.

This even as it defied the deterioration of the banking sector asset quality as the industry’s gross non-performing loans (NPLs) hit 13.1 percent in April from 12.5 percent in March.

Moreover, banking clients were able to access an estimated Ksh.29.1 billion or an equivalent 82.6 percent of funds released from the lowering of the CRR in March.

Other cushioning measures announced in the past two months have seen the combined restructure of Ksh.273.1 billion worth of loans or a representative 9.5 percent of the sector’s Ksh.2.8 trillion loan book.

The restructured loans have comprised of Ksh.102.5 billion in personal and household loans and Ksh.170.6 billion in loans to other 10 sectors including manufacturing, tourism and real estate.

Headline inflation remains well accommodated within the target range of 2.5 to 7.5 percent having come in at 5.62 percent in April.

CBK’s usable foreign exchange reserves rose to Ksh.888.9 billion ($8.3 billion) in recent weeks following the receipt of dollar flows from a Ksh.80.2 billion ($749 million) International Monetary Fund (IMF) loan and a rebound in horticulture exports.

The CBK has further retained its 2020 economic outlook at a 2.3 percent growth rate having lowered it from 3.4 percent in March.