The Central Bank of Kenya is expected to hold its indicative rate at 8.5 per cent for the sixth time today, quashing hopes of further interest rate cuts.
Analysts said the Monetary Policy Committee, the bank’s decision making organ, was meeting on the backdrop of a stable macroeconomic regime and global market uncertainties which demand caution.
“While fundamentals and market conditions favour a cut due to the need for credit expansion to help the economy grow, the global market uncertainty means a hold is the most likely outcome,” said Commercial Bank of Africa senior dealer Joshua Anene.
CBK’s decision is mainly targeted at influencing the inflation rate which dropped to 6.86 per cent in February from 7.21 per cent a month earlier but remained higher than the desired five per cent.
The government has, however, been pushing for lower interest rates which would help its bid of faster economic growth. Some analysts ruled out a cut saying rapid lending to the private sector could result in inflation.
“I don’t see a cut. Credit to the private sector grew by 20 per cent which was above the CBK target of 16 per cent,” said Standard Investment Bank’s head of research, Francis Mwangi, who also expects the rate to remain flat.
CBR is one of eight factors mentioned by banks that affect their pricing of loans. A survey by CBK in December revealed that 70 per cent of bank credit managers expected the rate to remain unchanged in the short term, with 23 per cent expecting some easing.
Banks have, however, been accused of being slow to transmit previous rate cuts to their borrowers through lower lending rates. CBK has continuously persuaded banks to pass on the rate cuts indicating that the lenders had room for further cuts even if the CBR was held steady.
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