Money Markets

Bank interest to remain high as CBK retains key rate

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The Central Bank of Kenya retained the policy rate at 9.50 per cent in a decision likely to halt the downward trend of banks’ lending rates. Photo/FILE

The Central Bank of Kenya retained the policy rate at 9.50 per cent in a decision likely to halt the downward trend of banks’ lending rates. Photo/FILE  Nation Media Group

By GEOFFREY IRUNGU

Posted  Tuesday, March 12   2013 at  18:47

In Summary

  • MPC said the retention was informed by the need to avert the risk of resurgent inflation as the current account deficit remains high.
  • The committee left the Central Bank Rate (CBR) at the same level citing rising oil prices and Kenya’s growth prospects being under threat from the Eurozone recession and slow recovery in the US.
  • MPC concluded that the banking sector remains “solvent and resilient” after considering available data and conducting stress tests on commercial banks.
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The Monetary Policy Committee (MPC) Tuesday retained the policy rate at 9.50 per cent in a decision likely to halt the downward trend of banks’ lending rates.

MPC said the retention was informed by the need to avert the risk of resurgent inflation as the current account deficit remains high.

The committee left the Central Bank Rate (CBR) at the same level citing rising oil prices and Kenya’s growth prospects being under threat from the Eurozone recession and slow recovery in the US.

It was the first retention of the rate since last July when the MPC began a series of cuts intended to drive down lending rates in a soft economy.

In a press statement after the MPC meeting, its chairman governor Njuguna Ndung’u said there was also need to allow previous rate decisions to work through the economy.

The CBR was cut to 9.50 per cent in January from 11 per cent for November. Last July, the rate stood at 18 per cent, at which it had been retained since December 2011. The rate had been raised towards the end of 2011 following an inflationary spiral and exchange rate turbulence.

“The committee noted there were risks to the macroeconomic outlook. These are attributed to the renewed upward drift in international oil prices and a weak outlook for the global economy with the expectation of a more pronounced recession in the Eurozone and a slow recovery of the US economy,” said Prof Ndung’u.

He added that the “outlook, coupled with the persistent balance of payments pressures due to the high current account deficit remain a threat to the general stability of prices.”

With a series of CBR reductions, the MPC said there had been increased uptake of credit. It cited the increase by 13.8 per cent in the number of loan applications between December 2012 and January this year.

“Annual growth in private sector credit rose from 10.42 per cent in December 2012 to 11.95 per cent in January, 2013. The credit expansion during the period was within the programmed growth path and was distributed across the key sectors of the economy,” said Prof Ndung’u.

The MPC concluded that the banking sector remains “solvent and resilient” after considering available data and conducting stress tests on commercial banks.

“Despite the growth in the volume of loans, the ratio of gross non-performing loans to total loans increased marginally from 4.5 per cent in December 2012 to 4.6 per cent in January 2013, an indication that credit risk in the banking sector remains low.”