CBK Cuts Interest Rate on Loans to 11.25 percent
The Monetary Policy Committee of the Central Bank of Kenya (CBK) has lowered the benchmark lending rate by 75 basis points to a record-low of 11.25% to sweat the third time in the 2024 financial year. The announcement was made at the last MPC meeting for the year led by CBK governor Dr. Kamau Thugge.
Reasons for the Rate Cut
The CBK cited the following factors influencing the decision:
- Lowering inflation to demask a deceleration of prices within an economy or relieve cost burden.
- External factors: moderate volatility of the domestic currency, the Kenyan shilling in particular, and respective risks’ containment.
- Fiscal performance which factors a slower economic growth rate in the first half of the year and the need for monetary boost.
Call to Action for Banks
Commercial banks have also remained quiet, from the multiple rate cuts and have failed to reflect the same on the borrowers according to Dr. Thugge.
“Of course, the banks have been slow to cut their interest rates… I think they know that they have to begin taking bold measures to reduce interest rates to consumers now”, he said.
As reported recently, CBK has been holding meetings with banking CEOs discussing the problem of a weak transmission of monetary policy.
Enhanced Circumstances for Rate Revisions
The CBK emphasized a reversal in conditions that previously constrained banks from lowering rates:
The yield of 91-day Treasury bill decreased from 16 % to 10.45 % a move that has effectively decrease the cost of funds to banks.
More attractive deposit rate means that the banks ape to reduce their lending rate without reducing their margins.
The regulator called on banks to lower credit to government by extending credit to the private business more and more. Dr. According to Thugge, this shift is important in order to spur growth in economy and create job opportunities.
Economic Outlook
The CBK expects that reduced lending rates will:
- Reduce interest cost in business and personal borrowing.
- Promote credit expansion on private sector line, a vice that was stagnated.
- Promote employment generation by kick starting the stagnant or declining economy.
The Monetary Policy Committee will meet again in February 2025 to review the economic conditions to see next course of action.