Central Bank holds basic lending rate at 10 per cent
Central Bank of Kenya governor Patrick Njoroge. FILE PHOTO | NMG
What you need to know:
- MPC retains benchmark rate at 10 per cent despite month-on-month inflation hitting a five-year high.
- Core inflation has remained stable at below 5 per cent.
- CBK governor says number of loan applications increased by 23.4 per cent between August 2016 and April 2017.
The maximum cost of loans remains unchanged after the Central Bank of Kenya (CBK) on Monday retained the base lending rate as banks continued to shy from lending due to the legal caps on borrowing rates.
The Monetary Policy Committee (MPC) maintained the benchmark rate at 10 per cent despite inflation hitting a five-year high, saying the current monetary policy stance had reduced the threat of money-driven inflation.
Kenya is struggling to contain high inflation, caused mostly by higher food prices, which is outside the monetary control.
Kenya’s inflation rose to an annual 11.48 per cent in April, up from 10.28 per cent in March and the highest since May 2012 — which is beyond Treasury preferred an upper limit of 7.5 per cent.
Committee chairman and CBK governor Patrick Njoroge cited a stable forex market, a narrower current account deficit and exchange reserves are “at all-time high levels” which continue to cushion the economy from unforeseen shocks as the reasons for holding the base rate unchanged.
“The MPC, therefore, decided to retain the Central Bank Rate (CBR) at 10 per cent. The committee will continue to closely monitor developments in the domestic and global economies, and stands ready to take additional measures as necessary,” said Dr Njoroge in a statement.
The government capped lending rates last September at four percentage points above the Central Bank Rate, saying they were too high and banks had repeatedly failed to lower them.
The Central Bank said as a result of the caps, the number of loan applications had increased by 23.4 per cent between August 2016 and April.
The value of the loans applied for fell by 18.3 per cent between August and April, suggesting approval of smaller loans.
“On the slowdown in private sector credit growth, which was largely due to factors in trade, manufacturing, real estate, and private households, the committee noted that credit to private households, manufacturing, and real estate had picked up in March and April 2017,” said Dr Njoroge.
