Central Bank saves borrowers from interest rate hikes again

Central Bank of Kenya (CBK) Governor Patrick Njoroge addressing the press at his office. [Beverlyne Musili/Standard]

Borrowers can heave a sigh of relief after the Central Bank of Kenya retained the benchmark rate at nine per cent for the second time since lowering it in July.

The apex bank, which was under pressure to increase the rate following bullish oil prices and rising inflation pushed by consumption tax on oil, held off an upward review in the wake of a surprise dip in oil prices.

This has raised expectations that the Energy Regulatory Authority will shave prices at the pump, further easing the cost of living.

“The MPC (Monetary Policy Committee) will continue to closely monitor developments in the global and domestic economy and stands ready to take additional measures as necessary,” said Central Bank Governor and MPC Chair Patrick Njoroge in a statement following a meeting of the chief lender’s decision-making organ yesterday.

The inflation rate fell to 5.5 per cent in October, from 5.7 per cent in September following decreases in food prices, which offset the increase in energy prices and transport costs as a result of the implementation of VAT on petroleum products in September.

The CBK policy team said the decline in international oil prices and the recent downward revision in electricity tariffs were likely to keep the cost of basic goods in check.

The regulator said the rate cap had reduced effectiveness of the policy team, in particular, the transmission of changes in the Central Bank Rate (CBR) to growth and inflation takes longer compared to the period before the cap.

CBK’s inaction at the loan setting rate will see banks continue with their recent reliance on Government paper to sustain their bottom lines, further denying credit to the private sector.

Private sector credit grew by 4.4 per cent in the 12 months to October this year compared with 3.9 per cent in September.

“The MPC Private Sector Market Perception Survey optimism was tempered by sluggish private sector credit growth, concerns over delayed Government spending and the recent increase in fuel prices,” said CBK.

Standard Chartered recorded a 33.9 per cent rise in nine months profit to September even as it reduced its loans to customers by two per cent as quarter three net profit jumped from Sh4.7 billion to Sh6.3 billion on a 15 per cent rise in interest on Government paper.

Loans and advances to customers declined by 12 per cent to Sh111 billion compared with Sh126.3 billion at the end of 2017.

The same story was duplicated at Diamond Trust Bank, which saw its profits rise 10.7 per cent from Sh4.7 billion to Sh5.2 billion in a similar period under review.

Loans to the State earned the lender an increase in interest income from Sh8.7 billion to Sh9.7 billion while on the customer side, interest income declined from Sh16.7 billion to Sh16.5 billion.

Equity Bank posted an 8 per cent rise in profit focusing on lending to the State, with Government securities rising to Sh125.3 billion in the nine months to September from Sh109.5 billion last year.

Coupled with other securities, income from Treasury Operations increased by 18 per cent to Sh15.7 billion from Sh13.2 billion year on year.