Central bank cuts base lending rate to 8.5 per cent

The central bank has cut the base lending rate to 8.5 per cent from the previous 9 per cent

The bank’s Monetary Policy Committee (MPC) welcomed repeal of the interest rates caps on commercial bank loans. In a statement, the MPC noted that the move has led to a significant rationing of credit.

“This reform should restore the clarity of monetary policy decisions and strengthen the transmission of monetary policy. Further banks have adopted the banking sector charter, which defines a commitment to entrench a responsible and disciplined banking sector responsive to needs of customers,” said Patrick Njoroge, Chairman Monetary Policy Committee.

The MPC noted that inflation expectations remained well anchored within the target range, and assessed that the economy was operating below its potential level.

Furthermore, the Committee noted the ongoing tightening of fiscal policy and concluded there was room for accommodative monetary policy to support economic activity.

“The MPC therefore decided to lower the Central Bank Rate (CBR) to 8.5 percent from 9 percent. The Committee will closely monitor the impact of this change in its policy stance.”