The maximum cost of loans remains unchanged after the Central Bank of Kenya (CBK) on Monday retained the base lending rate providing relief for millions of borrowers.
The Monetary Policy Committee (MPC) maintained the benchmark rate at 10 per cent, saying the current monetary policy stance had reduced the threat of money-driven inflation.
This came even as banks continue to shy from lending due to the legal caps on borrowing rates.
Committee chairman and CBK governor Patrick Njoroge cited a relatively stable forex market, a narrower current account deficit and exchange reserves that continue to cushion the economy from unforeseen shocks as the reasons for holding the base rate unchanged.
“The Committee concluded that the current policy stance remains appropriate. The MPC therefore decided to retain the Central Bank Rate (CBR) at 10 per cent in order to continue to anchor inflation expectations,” said Dr Njoroge in a statement.
“The CBK will continue to closely monitor developments in the global and domestic economy, and stands ready to take additional measures as necessary,” said Dr Njoroge.
He noted that growth of credit to the private sector fell further to 2.1 per cent over the 12 months to May this year, attributing this in part “to significant repayments in manufacturing, transport and communication, and developments in the trade sector.”
“The Committee continues to monitor the implications of the capping of interest rates on lending and the transmission of monetary policy,” he said.
The government capped lending rates last September at four percentage points above the Central Bank Rate, saying they were too high and banks had repeatedly failed to lower them.
Kenya’s inflation fell to 9.21 per cent year-on-year in June, from 11.70 per cent a month earlier. The Kenya National Bureau of Statistics partly attributed this to a drop in food prices. Month-on-month inflation was minus 1.2 per cent.