Central Bank of Kenya Retains Lending Rate at 10pc

Central Bank of Kenya(CBK) Monetary Policy Committee  retained its benchmark lending rate at 10.0 percent on Monday projecting inflation to remain within the government’s short-term target of 5 percent.

This is a relief for borrowers who will expect commercial banks to continue lending at 14 per cent four percentage points above the CBR rate by paying seven per cent (or 70 per cent of CBR — for customers’ deposits.

Read: Central Bank Rate Expected to be Retained at 10 pc

In retaining the CBR at 10 per cent, the committee concluded that prevailing inflationary pressures were mild and inflation will remain within the Government target range in the short term and therefore did not see the need to readjust the rate.

“Month-on-month overall consumer price index inflation increased to 6.5 per cent in October from 6.3 per cent in September. Nevertheless, overall inflation remained within the Government target range,” said CBK Govenor Patrick Njoroge, who is also the committee’s chairman, in a statement.

The MPC further said, the economy was performing strongly, with 6.2 percent growth in the second quarter of 2016. However, the economic growth has been projected to slow to just over 6 percent next year, down from an initial forecast of 6.5 percent, mainly because of slowing private-sector credit growth.

“The slower (credit) growth witnessed over the last several months was found to be largely an outcome of structural factors in the banking sector rather than monetary policy. However there is no evidence that this is having a negative impact on economic growth.”

“Private sector credit growth had been on a decline for the better part of this year stabilized at 4.6 per cent in October from 21 per cent recorded over a similar period last year,” said Njoroge.

The decline was mainly attributed to the 30.9 per cent increase participation in Treasury Bills and Bonds auction by banks leading to crowding out of private investors.