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Central bank tipped to cut rates next month if cap goes

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Central Bank of Kenya (CBK). FILE PHOTO | NMG

Central Bank of Kenya (CBK) could next month cut rates if the lending cap is lifted, to manage a rise in interest rates.

CBK will be under pressure to ensure lending rates do not rise but can only act in the next meeting of the Monetary Policy Committee (MPC) that will be held in November 25, 2019.

The last time CBK cut rates was back in May 2018, from 9.5 to nine per cent in the vain hope of stimulating lending.

“There is increased possibility of a 50 basis points to 100 basis points rate cut in the November MPC meeting, especially if the rate caps are repealed,” Patrick Mumu Research Analyst Genghis Capital Ltd. Mr Mumu said assessing the economic environment against that of the last rate cut in 2018, there are similar signals including lower inflation, improved but low private sector credit growth and a steady currency.

There is a wave of monetary stimulus in the global markets.

The MPC held back in the September meeting to monitor the uncertainty in both the global and local markets.

“That uncertainty is beginning to unravel and should the rate caps be repealed, it will undoubtedly play a role in the coming MPC decision,” he said.

During the last MPC meeting, CBK Governor Patrick Njoroge said the Treasury budget cuts had given CBK scope to lower CBR. “The committee also noted the prospective tightening of fiscal policy which would provide scope for accommodative monetary policy in the near term,” Dr Njoroge said.

He said the only hindrance to such a cut is the rate cap, which had interfered with policy transmission in that cutting rates will only make banks reduce lending to the private sector.

CBK abolished the Kenya Bankers Reference Rate (KBRR) that was used to give a direction of how much banks charged customers.