DTB forecasts fall in loan interest rates starting mid of current year


Principal Secretary State Department for Investment Promotion Abubakar Hassan Abubakar (left), Diamond Trust Bank CEO Nasim Devji (Centre) and DTB Finance Director Alkarim Jiwa during DTB third economic and sustainability engagement forum at Serena Hotel in Nairobi on February 14, 2024. PHOTO | LUCY WANJIRU | NMG

Diamond Trust Bank (DTB Group) is tipping interest rates on loans to start falling in mid-year as inflation eases, and the shilling finds some muscle against the dollar in a move that could ease pressure on borrowers.

DTB head of research and analysis Faith Atiti said Wednesday in the bank’s economic and sustainability forum in Nairobi, that the Central Bank of Kenya Monetary Policy Committee (MPC) could most likely keep retain its CBR at the current 13 percent and start bringing down the rate around June.

The outlook is based on expectation that the shilling will either hold steady or continue to strengthen against the greenback helping inflation to also ease further and offer CBK room to stimulate the economy by cutting interest rates.

Ms Atiti said the recent issuance of a $1.5 billion (Sh235 billion) Eurobond has lifted the uncertainty about how the government was going to pay the $2 billion (Sh313.4 billion) Eurobond that is maturing in June and helped turn around sentiments about the economy.

“With the issuance of the $1.5 billion Eurobond, we have seen markets begin to correct. We are seeing some stability in the exchange rate. Those buying dollars from the market are getting a lot more favourable rates. These are initial signals that sentiments are turning,” said Ms Atiti.

“As the exchange rate stabilises, we expect inflation to equally come down especially since about 40 percent of it was linked to forex pass-through. That will give CBK headroom to begin reducing interest rates. We do expect that at least mid-year, we should begin to see interest rates coming down.”

The shilling opened Wednesday averaging 156.71 to the dollar, marking the 14 consecutive trading days of gaining against the world’s major currency, having closed January 30 at 160.75. It had touched a record low of 161.36 to the dollar on January 23, before the relative stability set in.

The MPC last week raised the CBR from 12.5 percent to 13.5 percent, being the highest point in 12 years. Borrowers were last year hit with three rises in the CBR, with each rise translating to higher interest rates on loans.

DTB chief executive Nasim Devji said DTB expects the returned optimism to help the economy grow by 5.5 percent this year, helped by a recovery in agriculture and other sectors.

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