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Central Bank maintains lending rate at 18 per cent

BUSINESS
By Jackson Okoth | May 4th 2012

By Jackson Okoth

Individuals and business that depend on bank credit will have to suffer a little longer.

This is after the Central Bank of Kenya (CBK), through its policy organ-the monetary policy committee, decided to maintain the rate at which it lends to commercial banks at 18 per cent.

It is the fifth time the committee has maintained the Central Bank Rate (CBR) since beginning of this year.

Households and small business struggling to service their bank loans will also have to dig deeper into their pockets.

Signs of credit constraints in market are seen by the scramble by borrowers fleeing from banks to Savings and Credit Co-operatives, pyramid schemes and shylocks.

Though cost of living has been on a decline since January this year, the committee has expressed concerns that rising price of crude oil on the international markets poses a threat and could trigger another round of exchange rate volatility and inflationary pressure.

"Inflation has declined from 15.6 per cent in March to 13 per cent in April, same to cost of items that does not include either food or fuel, an indication that the monetary policy stance adopted is working," said Prof Njuguna Ndungfu, chairman of the committee.

The policy think tank notes that confidence in the economy remains high as shown by a rise in diaspora remittances.

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A slowdown in demand for credit by the private sector has also been observed, raising hopes inflation has been contained.

The exchange rate against other major currencies is also expected to remain stable. "The International Monetary Fund disbursed an extended credit facility in April, 2012 increasing the CBKfS foreign exchange reserves position to $4,629 million or 4.02 months of import cover," said the committee.

It is the small and medium sized banks that are hit by huge interest expenses on the books, if the current high rates are sustained for long.

" We are not excited about the prevailing rates and are hopefully that this short term phenomenon will change soon to avoid distortions in the credit market," Ecobank Kenya Chief Executive, Tony Okpanachi told The Standard.

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