Good news for borrowers as CBK cuts base rate

Borrowers will enjoy lower credit after the Central Bank's monetary policy team yesterday cut the basic lending rate to nine per cent from 9.5 per cent.

According to the law capping interest rates, banks can only charge four percentage points above the Central Bank Rate (CBR), putting the maximum rate they can charge at 13 per cent.

“Economic output was below its potential level and there was some room for further accommodative monetary policy,” the Monetary Policy Committee (MPC) chairman and CBK governor, Patrick Njoroge (above), said.

This is meant to stimulate the economy by encouraging banks to lend more to boost productivity.

Little returns

The MPC, however, noted that the latest action carried with it the risk that lenders would be even more cautious in giving out loans under the rate cap era since banks would have little returns against their perceived risk.

“While noting the risk of perverse outcomes, the committee decided to lower the CBR to nine per cent from 9.50 per cent,” Dr Njoroge said.

The policy team said a preliminary assessment of the impact of lowering the CBR in March this year showed that this change had a smaller and slower impact on key macroeconomic variables such as credit and economic growth.