NAIROBI: Loan borrowers have won another victory against commercial banks after the Central Bank of Kenya (CBK) cut its benchmark lending rate to 10 per cent yesterday.

This means that banks must now offer loans at a maximum interest rate of 14 per cent.

CBK's decision has defied the expectations of many analysts who argued that there had been no significant change in the macro-economic environment since the last Monetary Policy Committee meeting to warrant a change in the Central Bank Rate (CBR)

Reuters, from the poll of 12 economists last week, had predicted that CBK would hold the rate but cut it to 10 per cent at its November meeting.

"With the state of affairs in the money market environment, all indicators are neutral towards the MPC decision on CBR. In light of this, we are of the view that MPC will maintain the CBR at 10.5 per cent," Cytonn Investments, an independent investment management firm, had said.

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The decision comes after CBK lowered the rate in its last sitting. In May, the regulator cut the CBR by 100 basis points (one per cent) for the first time in nine months on account of a relatively stable shilling and easing of inflation.

CHEAPER CREDIT

In what may point to even cheaper credit in future, the committee, which sits every three months, yesterday noted that it would continue to put in place measures to "sustainably reduce the cost of credit and improve liquidity management".

The previous regime was based on the Kenya Bankers Reference Rate (KBRR), which was a hybrid of CBR and risk-free rate in the market (91-Day Treasury bill rate). This was adjusted twice a year.

Since January, inflationary pressures have eased to remain within CBK's target of between 2.5 per cent and 7.5 per cent.

Inflation has dropped steadily for the last eight months, touching a 35-month low of 5 per cent in May. Last month, it stood at 6.26 per cent, lower than 6.4 per cent in July.

Despite non-food-non-fuel inflation rising slightly to 5 per cent in August, the committee said it has been stable since June, an indication that there were no significant demand pressures on the economy.

The shilling has been relatively stable against the US dollar. From the close of 2015, when the Kenyan currency was exchanging at Sh102.30 against the dollar, the shilling hit a strength of Sh100.40 in May.

It is now relatively stable at Sh101.

The move was also supported by a drop in the import bill, which dropped by about 12 per cent by September last year.