The Central Bank of Kenya’s Monetary Policy Committee (MPC) has reduced the Central Bank Rate (CBR) from 9 percent to 8.5 percent saying the economy is currently “operating below potential.”
The MPC met on Monday, 25th of November and made a decision that will see commercial banks forced to lower their lending rates.
The move by CBK to lower the CBR is aimed at compelling banks to give money to the consumers, a move that will increase cash flow among the people and increase purchasing power for goods and services.
The CBK’s move comes at a time Kenya’s economy is literary struggling with companies laying off employees with most closing down due to the high cost of doing business and minimal sales.
According to CBK, credit to the private sector increased by 6.6 percent in the year to the month of October from 7 percent that was witnessed to the month of September. The growth is, however, below the ideal level that is set at between 12 and 15 percent.
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It is, however, not guaranteed that the commercial banks will obey the Central Bank of Kenya’s directive and lower their lending rates. Currently, the state has no say over banks on how they should issue loans to consumers.
The Interest Cap Law, which had been implemented to put commercial banks under check on how they should charge consumers on loans was scrapped off by parliament and signed into law by the President.
“The committee noted the ongoing tightening of fiscal policy and concluded there was room for accommodative monetary policy to support economic activity,” Dr. Patrick Njoroge, the CBK Governor said.