Central Bank Holds Lending Rate at 10 Percent

Borrowers breathed a sigh of relief after the Central Bank of Kenya (CBK) held its base lending rate at 10 percent.

The cost of living measure is driven by a temporary shortage of food and not the cash supply, the Monetary Policy Committee (MPC) said that was the reason they retained the benchmark rate despite the inflation rate hitting a four year high.

A stable forex market, a narrower current account deficit ad enough foreign currency reserve to cushion the economy from unforeseen shocks as reasons for holding the base rate unchanged, cited the committee and Central Bank governor Patrick Njoroge.

The lending rate has retained at the 10 percent since last September, effectively pricing lending rates at a maximum of 14 percent in line with the capping of interest rates at four percentage points above the Central Bank Rate (CBR).

Dr. Njoroge said that the committee remains concerned about the prevailing uncertainties, including the impact of the interest rate caps on the effectiveness of the monetary policy.

The Treasury Secretary Henry Rotich said that the government is mulling reviewing the caps in the wake of a sharp decline in credit growth.

Treasury, however, said the interest rate controls are not entirely to blame for the credit squeeze, saying the decline had hit banks across East Africa.

“There was already an underlying decline in credit extension to private sector even before the imposition of the controls in September,” the Treasury said.

Lending to businesses and individuals grew a paltry 4.3 per cent in the year to December, down from a 20.6 per cent a year earlier, making it the slowest growth in more than 10 years.

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Written by Amina Martha.