Central Bank of Kenya holds benchmark rate at 10 per cent again

Central Bank of Kenya Governor Patrick Njoroge. Photo: David Njaaga, Standard

The Central Bank of Kenya Monday retained the base lending rate at 10 per cent for the tenth month in a row, saving borrowers from higher borrowing costs.

CBK’s decision-making organ, the Monetary Policy Committee (MPC), said macro-economic conditions had over the past two months largely remained unchanged and hence did not warrant altering the Central Bank Rate (CBR).

Amended Banking Act

The last time the MPC changed the CBR was in September last year, when it brought it down from 10.5 per cent to 10 per cent.

This came shortly after the amended Banking Act was signed into law. The Act caps loan rates to four per cent of the CBR, which meant a further drop in the lending rates by commercial banks.

The retention of the benchmark lending rate means banks will continue lending at a maximum of 14 per cent.

Among the factors that the MPC takes into consideration when setting the CBR include inflation, which declined to 9.2 per cent in June compared to 11.7 per cent in May, largely on reduced food prices following the rains in April.

It also considers the strength of the local currency relative to major world currencies that, according to CBK, remained relatively stable.

Policy stance

“The committee concluded that the current policy stance remains appropriate. The MPC, therefore, decided to retain the Central Bank Rate at 10.0 per cent in order to continue to anchor inflation expectations,” said CBK Governor and MPC chairman Patrick Njoroge in a statement.

There has been a continued decline in lending to the private sector by banks in the wake of the rate cap law.