Markets & Finance

CBK cuts policy rate to 10pc on muted inflation outlook


The Central Bank building in Nairobi. The bank has refused to clarify many aspects of the new law, leaving it to every bank to apply their own interpretations. PHOTO | FILE

The Central Bank’s Monetary Policy Committee has lowered the Central Bank Rate (CBR) by 50 basis points to 10 per cent, amid confusion in the banking sector over the newly introduced interest rate caps.

The CBR has been at 10.5 per cent since July 25.

The move comes after President Kenyatta signed into law a Bill capping bank interest rates at 4 per cent above the policy rate.

Central Bank Governor Patrick Njoroge said Tuesday that it made the decision on lower inflationary pressure. Kenya's inflation rate dropped last month to 6.26 per cent.

"The committee observed that the demand pressures on inflation are moderate and inflation is expected to decline in the short term, but the Committee remains concerned about the persistent slowdown in private sector growth," said Dr Njoroge in a statement.

Commercial banks' return on equity is expected to drop by at least 50 per cent on lower spreads occasioned by the policy decision.

READ: MPC meets as confusion over interest rates cap law mounts