CBK spares borrowers hike in loan costs

CBK Governor Kamau Thugge when he appeared before the National Assembly's Finance and Planning committee. [Elvis Ogina,Standard]

Borrowers have been spared the higher cost of loans after the Central Bank of Kenya (CBK) retained its benchmark signal rate at 13.00 per cent following Wednesday’s Monetary Policy Committee (MPC) meeting.

CBK said the current monetary policy stance has reduced the threat of money-driven inflation even as banks cut loans to customers and bad loans reach record levels pointing to a worsening debt crisis afflicting Kenyan borrowers.

In a statement following a meeting of the apex lender's highest decision-making organ, CBK said last evening that inflation is expected to decline further in what would be a huge relief for cash-strapped Kenyans. 

The President William Ruto-led Kenya Kwanza administration has been under pressure to bring down the cost of living and alleviate the pain of Kenyans. 

Overall inflation, or the cost-of-living measure, declined to 5.7 per cent in March from 6.3 per cent in February, driven by lower food and non-food non-fuel inflation.

The inflation rate is within the government’s target range of 2.5 per cent to 7.5 per cent.

"The MPC noted that its previous measures have lowered inflation, addressed the exchange rate pressures, and anchored inflationary expectations. The Committee further noted that overall inflation is expected to continue declining in the near term, supported by lower food and fuel prices, and pass-through effects of the recent exchange rate appreciation,” said CBK Governor and MPC Chairman Kamau Thugge.

“Therefore, the MPC concluded that the current monetary policy stance will ensure that overall inflation continues to decline towards the 5.0 per cent mid-point of the target range, and thus decided to retain the Central Bank Rate (CBR) at 13.00 per cent."

In a slight relief for Kenyans, food inflation declined to 5.8 per cent in March from 6.9 per cent in February, reflecting lower prices of some food items, particularly maize and wheat products, carrots, kales/sukuma wiki, spinach, and cabbages, following improved supply attributed to ongoing harvests and favourable weather conditions.

On the other hand, fuel inflation declined to 12.3 per cent in March from 13.4 per cent in February, largely reflecting the impact of the shilling’s appreciation which resulted in a decrease in electricity prices and a downward adjustment in pump prices. 

CBK quoted the shilling at 131.4892 per unit against the US dollar in yesterday's trading. 

The shilling has sustained its rally against the US dollar raising optimism among traders and consumers on the for a lower cost of living. The strengthening of the local currency also sets up the country for a lower cost of electricity and reprieve from debt servicing distress.

“Non-food non-fuel (NFNF) inflation remained stable at 3.6 per cent in February and March,” said Dr Thugge.

“Overall inflation is expected to moderate further in the near term, supported by easing food and energy prices, pass-through effects of the recent exchange rate appreciation, and the impact of monetary policy actions which continue to filter through the economy.”

Data by the regulator, however, indicated that there was limited private sector access to credit amid the recently hiked benchmark rate. Private sector credit grew by 10.3 per cent in the 12 months to February this year compared to 13.8 per cent in January, said CBK.

Dr Thugge said bad loans had increased with the ratio of gross non-performing loans (NPLs) to gross loans stood at 15.5 per cent in February 2024 compared to 14.8 per cent in December last year.