Borrowers have been spared higher cost of loans after the Central Bank of Kenya (CBK) retained its benchmark signal rate at 9.0 percent following Monday’s Monetary Policy Committee (MPC) meeting.
The regulator, however, pointed out that limited private sector access to credit was pulling back economic growth.
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.
Inflation, which rose marginally to 5.7 percent in December compared to 5.6 percent in November remained within the government’s preferred band of 2.5 to 7.5 percent, the CBK noted, adding that the economy was operating close to its potential.
“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.
Banks continue to shy away from lending to businesses and households citing legal caps on borrowing rates.
Private sector credit grew by just 2.4 percent in the 12 months to December 2018, compared to three percent in November, said CBK.
The credit growth remained well below the central bank’s target rate of 12-15 percent, a growth adequate to support economic development.
CBK noted that lending to the finance and insurance sectors, consumer durables, business services and private households grew by 17.5 percent, 11 percent, eight percent and 6.8 percent respectively.
“Private sector credit growth is expected to strengthen in 2019 relative to 2018, with the anticipated higher economic activity and easing credit risk,” said the CBK Governor, Dr Patrick Njoroge.
Kenya capped commercial lending rates in September 2016 at four percentage points above the central bank’s benchmark rate in an attempt to limit the cost of borrowing for businesses and individuals.
Although the aim was to help small traders access capital at affordable rates, the cap had the opposite effect, as lenders deemed SMEs too risky to lend to, arguing they could not price risk accurately while the cap was in place.
CBK said the ratio of gross non-performing loans (NPLs) to gross loans fell to 12 percent in December from 12.3 percent in October, largely attributable to declines in NPLs following sustained recovery efforts by banks particularly in the trade, manufacturing, building and construction, and transport and communication sectors.