StanChart sees Kenya’s growth boosted by lower interest rates

The government’s efforts to clear pending bills and demand for credit from businesses following lower interest rates is expected to help Kenya’s economy grow 5.8 per cent this year, experts have said.

Standard Chartered Bank Chief Economist for Africa Razia Khan (pictured) said the favourable credit growth environment would boost activity not just for working capital but for long term investments. 

Speaking yesterday during the release of the bank’s Economic Outlook 2020 for Africa, Ms Khan, however, said the government’s austerity measures were the “key test” in the future.

“The key test for Kenya in the years ahead will be the strength of its fiscal consolidation intent. Encouragingly, authorities have unveiled plans for further cuts to discretionary spending,” she said. 

Eva Otieno, Africa Strategist for Standard Chartered, added that with the ongoing fiscal consolidation Central Bank of Kenya (CBK) might have to do some “heavy lifting” in supporting economic growth.

“The (benchmark rate) cut was a measured step by CBK to be able to stimulate economic growth,” she said.

The CBK’s Monetary Policy Committee cut the lending rate from 8.50 per cent to 8.25 per cent.

The slashing and the interest cap removal are expected to see the credit to the private sector grow to 11.8 per cent this year from 7.1 per cent recorded in 2019.

To stimulate more growth, Ms Otieno said the government should encourage sector-specific lending, such as the Big Four.