In the latest review, the Monetary Policy Committee (MPC) fixed the benchmark rate at 9.5 per cent from 10 per cent, meaning banks are now required to charge borrowers a maximum of 13.5 per cent interest on loans.
Reprieve for Kenyan borrowers as Central Bank cuts the cost of loans
CBK has cut the signal rate for the first time since legal caps were introduced on the cost of credit one and a half years ago.
It is the first time that the CBK has cut the signal rate since legal caps were introduced on the cost of credit one and a half years ago.
In a statement, CBK Governor Patrick Njoroge, who chairs the MPC, said the decision was informed by the need to ease the monetary policy stance in order to support economic output which is currently below its potential level.
“Therefore, it concluded that there was scope for easing its monetary policy stance in order to support economic activity. Consequently, while noting the risk of perverse outcomes, the Committee decided to reduce the Central Bank Rate (CBR) to 9.50 percent from 10.00 percent,” Dr Njoroge said.
MPC also noted that inflation continued to drop while the foreign exchange market remained stable.
Dr Njoroge said private sector credit had slowed to 2.1 percent as of February down from 2.4 percent in December.
The central bank rate was last adjusted in September 2016, the same month the interest rate cap law came into effect.
Banks have shied away from lending to individuals and blamed the legal caps on the slow rate at which credit it growing.
Kenya has been under pressure to scrap the interest rate cap law with the National Treasury and the CBK in agreement that the law had become unsustainable.
The International Monetary Fund (IMF) last week pegged the six month extension of Kenya’s Sh150 billion standby loan agreement on commitment from the government to do away with law.
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