Borrowers have been spared higher cost of loans after the Central Bank of Kenya (CBK) Monday retained its benchmark lending rate at 9.5 per cent, saying the impact of the previous cut was yet to be fully felt.
The bank cut the rate by 50 basis points at the last sitting of its monetary policy committee in March, saying the economy needed a boost, pricing maximum loans at 13.5 per cent.
“The committee assessed that the policy action at its March meeting was yet to be fully transmitted to the economy, including a determination of any perverse outcomes,” central bank said in a statement.
Inflation, which slowed to 3.73 per cent last month, remained within the government’s preferred band of 2.5-7.5 per cent, CBK said, adding that economic output was still below its potential level.
Private sector credit grew just 2.8 per cent in the year to April, up from 2.1 per cent in the 12 months to February.
But credit growth remained well below the central bank’s target rate of 12-15 per cent, a growth adequate to support economic development.
CBK noted lending to the manufacturing, building and construction, finance and insurance and trade sectors grew by 10.1 per cent, 14.1 per cent, 10.1 per cent, and 5.0 per cent, respectively.
“This offset the substantial loan repayments recorded in the transport and communication sector in the first quarter of 2018,” said the 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, saying they could not price risk properly while the cap was in place.
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