CBK holds lending rate despite pressure on the shilling

Bank customers were Monday spared the pain of higher cost of loans after Central Bank of Kenya monetary policy committee (MPC) held the base lending rate at 10 per cent despite a slightly weaker shilling and higher inflation.

With the rate hold, the maximum rate on bank loans remains 14 per cent, being four percentage points above Central Bank Rate (CBR) as per the law.

There had been concern CBK might be pushed to tighten monetary policy by raising the CBR in response to a weakening shilling — that has now hit a nine-month low of 102 units to the dollar — and rising inflation, which stood at an eight-month high of 6.5 per cent in October.

The MPC said it expects the inflation rate to remain within statutory bounds, while adding that it is too early to determine the impact of the interest rate cap on bank lending and deposits on monetary policy and overall economy.

The regulator was more concerned with global uncertainties coming from the US election and a possible rate hike next month, as well as the lingering effects of Brexit.

“The committee concluded that inflationary pressures were mild and inflation will remain within the government target range in the short term.

“Given the prevailing domestic and global economic uncertainties, and the need for more conclusive information on these developments, the MPC decided to retain the CBR at 10 per cent,” said the CBK in a statement on the MPC meeting.