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Individuals, SMEs to benefit from cheaper loans

By Zachary Ochuodho
Tuesday, January 28th, 2020
Central Bank of Kenya Governor Patrick Njoroge. Photo/PD/ALICE MBURU

Central Bank of Kenya (CBK) has signalled commercial banks to cut their lending rates after its Monetary Policy Committee lowered its benchmark lending rate by 25 basis points to 8.25 per cent.

This implies that borrowers will for the next two months be able to secure cheap credit to support their businesses and ultimately help to revitalise economic growth.

Dr Patrick Njoroge, CBK Governor,who chairs the MPC, said in a statement that inflation has remained within the target range while the economy continues to operate below its potential level following the tightening of fiscal policy.

“The MPC, therefore, decided to lower CBR to 8.25 per cent from 8.50 per cent. The Committee will closely monitor the impact of this change to its policy stance,” he said.

He said inflation rate stood at 5.8 per cent in December compared to 5.6 per cent in November, which reflects the effects of increases in food prices and transport costs during the festive period.

The reduction came as a surprise to some analysts who predicted that the committee would retain the benchmark lending rates at 8.50 per cent as reduced in November 2019, while others argued that the rates needed to come down to stimulate growth.

David Gitau of Cytonn Investment Management Plc said that the economy was operating below its potential level and there was room for accommodative monetary policy to support economic activity.

Fiscal consolidation

“With the plans of the continued fiscal consolidation by the government, we believed that a further cut would be necessary to provide the required economic growth stimulus to further boost by the repeal of the interest rate cap,” he added.

Njoroge said inflation had remained contained and within the government set target of 2.5 to 7.5 per cent, amid slowed economic growth, thus providing room for moderate stimulus through expansionary monetary policy.

 The private sector credit, according to CBK grew by 7.1 per cent in the 12 months to December 2019

Churchill Ogutu, a research analysts at Genghis Capital had predicted that stable shilling against the US dollar, food prices would persuade MPC to adopt a neutral policy stance and maintain CBR at 8.5 per cent. 

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