In an earlier article we had informed you that the Central Bank of Kenya (CBK) Governor Patrick Njoroge had come out clear and declared that the Central Bank Rate (CBR) is the legitimate base rate. This finally settled the pressing question as to which base rate commercial banks are supposed to use to price their loans. At that time the CBR stood at 10.5 percent. This translated to the cost of loans been adjusted to a maximum of 14.5 percent.
Hope you remember that the Banking (Amendment) Act 2016 sets the ceiling for lending rate at 4 percentage points above the base rate. It also goes ahead to set the floor for deposit rates at 70 percent above the base rate.
The good news to the consumers is that the CBK has adjusted the CBR downwards. The CBK has decided to cut the base lending rate by 50 basis points. This means the base rate that commercial banks are supposed to use to price their loans now stands at 10 percent. This effectively caps lending rates at 14 percent. With this move the cost of loans has effectively reduced from 14.5 percent to 14 percent.
The following is the statement made by CBK governor Patrick Njoroge who also chairs the MPC committee:
“The committee remains concerned about the persistent slowdown in private sector credit growth. The MPC therefore decided to lower the CBR by 50 basis points to 10 percent.”
The CBK made this decision during the Monetary Policy Committee (MPC) meeting. The MPC meeting takes place after every two months to determine the country’s fiscal policy. This was the first MPC meeting held since the enactment of the Banking (Amendment) Act 2016. According to MPC, they decide to lower the CBR because the demand pressures on inflation are moderate and are expected to decline in the short-term.
Leave a comment
Powered by Facebook Comments