The reduction in benchmark lending rate in March failed to stimulate growth of loans to the private sector due to what a bankers’ lobby claimed was market distortion in favour of large firms resulting from rate caps.
The Central Bank of Kenya’s Monetary Policy Committee (MPC) on March 19 cut its Key lending rate by 0.5 percentage points to 9.5 per cent to stimulate borrowing on the back of renewed growth prospects following a return of relative political stability.
The decision was also motivated by a stable shilling against major international currencies, lower inflation, a narrower current account deficit and a build-up of forex reserves that cushioned the economy against shocks.
“To the extent that the monetary policy transmission is still constrained, you are not likely to see that affecting in a positive way the uptake of credit in the private sector,” Kenya Bankers Association’s director for policy and research Jared Osoro said.
“The evidence we are seeing is that the effect has been muted. We have not seen any evidence that the 50 basis points reduction in CBR has translated into credit expansion in the private sector.”
Commercial lenders have suspended unsecured loans to the micro, small and medium-sized enterprises (MSMEs) and households perceived as riskier, blaming the September 2016 legal ceilings on loan charges.