Borrowers have been spared a rise in cost of loans after the Central Bank of Kenya (CBK) retained its benchmark rate at 9.0 per cent amid mounting defaults and bankers reduced appetite for lending to individuals and small enterprises.
In a statement, the CBK said the current monetary policy stance had protected the shilling, which has been stable against major world currencies and reduced the threat of money-driven inflation.
“The MPC concluded that the current policy stance remains appropriate, and will continue to monitor any perverse response to its previous decisions,” said the regulator.
The government introduced a cap on loan rates in September 2016, in a bid to lower costs for individuals and businesses.
But the measure has had the effect of stifling the credit market as banks became more cautious in their lending, as economists predicted.
Private sector credit grew just 3.4 per cent in the year to February, well below CBK’s target rate of 12-15 per cent that is needed to support economic development
The CBK said the ratio of gross non-performing loans (NPLs) to gross loans rose to 12.8 per cent in February from 12 per cent in December, largely attributable to increases in bad debt mainly in the trade, real estate and transport and communications sectors.