8th time lucky: Central Bank of Kenya saves Kenyans from expensive loans and retains lending rate at 9.0% for the eighth time in a row

An Informal greengrocer popularly known as Mama Mboga selling her vegetables.
  • In a statement on Monday, CBK Governor Patrick Njoroge said macroeconomic stability and optimism on growth prospects informed their decision to leave the lending unchanged.
  • As a result of CBK’s stand local banks will continue to not offer loans at more than 4% points above the CBK benchmark in line with the capping law.
  • The private sector credit grew by 6.3% in the month of August, 2019 compared to 6.1% in July, according to MPC.

The Central Bank of Kenya has spared Kenyans higher cost of borrowing loans after it decided to retain retains lending rate at 9.0% for the eighth time in a row in the face of global uncertainties.

In a statement on Monday, after the Monetary Policy Committee (MPC) meeting, CBK Governor Patrick Njoroge said macroeconomic stability and optimism on growth prospects informed their decision to leave the lending unchanged.

“The Committee also noted the prospective tightening of fiscal policy which would provide scope for accommodative monetary policy in the near term,” said Njoroge.

Dr Njoroge added that inflation expectations were also within the target range in an “economy operating close to its potential.” The Governor further added that the temporary rise in oil prices after the events in Saudi Arabia will have only limited pass-through into inflation in Kenya.

“Nevertheless, there is need to remain vigilant on the possible effects of the increased uncertainties in the external environment.”

Why the lending rate is a big factor

As a result of CBK’s stand local banks will continue towing the line and not offer commercial loans at more than four percentage points above the CBK benchmark in line with the capping law.

Currently local banks offer loans at 13%.

Kenya relies heavily on oil imports and is therefore susceptible to global uncertainties and volatility in international markets. The country earns slightly over half a trillion shillings from exports annually.

However, in the face of heightened global tensions, Kenya’s private sector continues to thrive.

The private sector credit grew by 6.3% in the month of August, 2019 compared to 6.1% in July, according to MPC. The credit growth remained well below the central bank’s target rate of 12-15%, a growth adequate to support economic development.

The Committee also noted that lending to the trade, manufacturing, consumer durables, private households and finance and insurance sectors grew 8.4%, 7.5%, 23.0%, 8.6% respectively.

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