The Central Bank of Kenya (CBK) has set its next monetary policy meeting for May 28 at a time its key rate-setting committee is bracing for a proposed change in the rate cap law amid low inflation and possible rise in oil price.
At its last meeting on March 19 the Monetary Policy Committee (MPC), which meets every two months, cut the benchmark lending rate by 0.5 percentage point, leading to a drop in the cost of loans by a similar margin and hoping for relief to millions of borrowers.
This brought the rate to 9.5 per cent from 10 per cent, meaning banks are now required to charge borrowers a maximum of 13.5 per cent interest on loans.
The MPC said at the time that its decision was informed by the need to support economic activity in the changing business environment. Banks, however, said there has been little progress. CBK governor Patrick Njoroge, who chairs the MPC, then said a relatively stable forex market, a narrower current account deficit and a build-up of forex reserves that continue to cushion the economy from unforeseen shocks informed the decision to cut the base rate.
“The (MPC) concluded that there was scope for easing its monetary policy stance in order to support economic activity. Consequently, while noting the risk of perverse outcomes, the committee decided to reduce the Central Bank Rate (CBR) to 9.50 per cent from 10 per cent,” said Dr Njoroge.
The reduction in the benchmark rate came following release of data showing private sector credit grew 2.1 per cent in the 12 months to February this year, slightly lower than the 2.4 per cent in December last year.