Central Bank moves to spur lending

The Central Bank of Kenya (CBK) has reviewed its base lending rate to commercial banks by 50 points to nine percent in an attempt to enhance the flow of credit to the private sector.

The regulator’s decision to mark down the Central Bank Rate (CBR) was prompted by a preliminary assessment of the previous review in March 2018 which showed a smaller and slower impact of keeping the CBR at 9.5 percent on key economic variables.

Credit to manufacturing and construction for instance grew by 12.3 and 13.5 percent respectively in the year ending June 2018 while credit growth to crucial sectors such as agriculture, mining, transport and communication remained depressed.

Speaking during a media briefing following the end month Monetary Policy Committee (MPC) meeting, CBK governor Patrick Njoroge said a reduced CBR would accrue benefits to vital economic segments in the form of better access to credit.

“It is important to underscore the granularity of this credit growth meaning there are some sectors which don’t get that much credit. Agriculture for example gets only 4 percent of total credit despite accounting for more than a quarter of total gross domestic product (GDP),” Mr Njoroge told journalists on Tuesday.

Private sector credit is expected to be bolstered by a continued recovery of the economy after a depressing operating environment in 2017 which saw a lengthy drought coupled with a protracted electioneering period.

The economy has already shown its potential to bounce back from the upsets of 2017 as it expanded by a notable 5.7 percent in the first quarter of 2018 according to estimates by the Kenya National Bureau of Statistics (KNBS).

The CBK boss however noted that this growth would have been much greater were it not for a continued hold on interest rates for commercial bank loans.

“Interest rate caps are like brakes to the economy. I would equate this to driving around with your handbrake up. If we didn’t have caps, the sky would be the limit, we would be moving at a much faster pace,” he said.

The Central Bank has reviewed its growth estimates for 2018 to 6.2 percent anchoring the prediction on a rallying domestic economy supported by contained inflation and improved diaspora remittances.