The MPC, sitting for the second time since Kenya lifted the cap on commercial interest rates on November 7, cut the CBR rate by 25 basis points to 8.25 percent, saying the economy was operating below its potential.
The MPC added it cut the key rate in an environment where inflation expectations were within the target range and a tight fiscal policy manifested by cuts in government spending.
The Central Bank of Kenya (CBK) Monday signalled commercial banks to cut the cost of loans after it lowered its benchmark lending rate for the second time since May 2018 and nearly three months after the removal of the legal caps on borrowing charges.
CBK’s Monetary Policy Committee (MPC), sitting for the second time since Kenya lifted the cap on commercial interest rates on November 7, cut the CBR rate by 25 basis points to 8.25 percent, saying the economy was operating below its potential.
The MPC added it cut the key rate in an environment where inflation expectations were within the target range and a tight fiscal policy manifested by cuts in government spending.
The lowering of the rate from 9.00 percent to 8.50 percent last November was expected to signal banks to cut lending rates to boost supply of credit and put money in the hands of consumers, which would in turn boost demand for goods and services.
“The Committee assessed that the effects of the lowering of the CBR in November 2019 continued to be transmitted to the economy, but also noted that there was room for accommodative monetary policy to support economic activity,” said Patrick Njoroge, the CBK Governor and chair of the MPC.
“The MPC, therefore, decided to lower the CBR to 8.25 percent from 8.50 percent.”
Credit to the private sector, the CBK said, grew by 7.1 percent in the year to December, compared to 6.6 percent in the year to October, which are both below the ideal growth level of between 12 and 15 percent to support economic growth.
The Committee also noted that lending to the trade, manufacturing, trade, transport and communication as well as consumer durables grew 9.2 percent, 8.9 percent, 8.1 percent and 26 percent respectively.
“Growth in private sector credit particularly to Micro, Small and Medium-sized Enterprises is expected to increase gradually due to the deployment of innovative MSME credit products, the repeal of interest rate caps and the continued easing of credit risk,” said Dr Njoroge.
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