CBK needs a formula to cool lending rates


The Central Bank of Kenya in Nairobi. FILE PHOTO | NMG

The increase in lending rates to a 65-month high has come at the wrong time and the Central Bank of Kenya must find a formula to cool borrowing costs.

Kenyans have been battling financial problems, including a sharp rise in the cost of basic items amid stagnant wages and a freeze in hiring.

The new taxes and levies that followed the Finance Act put a further strain on the already squeezed incomes and raising business costs.

Therefore, this would be the worst possible time to tak any action that will raise the cost of borrowing.

The higher borrowing rates are the product of multiple factors including rising inflation, rising Central Bank Rate and the adoption of risk-based loan pricing by banks.

All these factors are within the ambit of the CBK.

The rise in borrowing rates is expected to mute demand for credit from the private sector as potential borrowers view the cost of funds as inhibitive.

This has the implication of slowing economic activities and hiring plans, a blow to an economy engulfed with biting youth unemployment.

Therefore, CBK must get a formula that will cut the lending rates.

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