Interested in a loan? Central Bank of Kenya retains lending rate at 7%

Central Bank of Kenya (CBK) has maintained its accommodative monetary policy stance from March last year amid a fall in price pressures, keeping its key lending rate at 7.0%.

A lending rate is the amount that a bank charges on money that it lends its customers. The function of interest rates is to entice those with the money to lend it to other individuals or organizations.

The rate was cut by 25 basis points in March of 2020 in order to mitigate the adverse effects of the Covid-19 pandemic. Basis points refers to a common unit of measure for interest rates and other percentages in finance.

The annual rate of inflation declined to 6.5% in October from 6.9% in September, mainly due to lower fuel prices, the bank said in its November Monetary Policy Committee statement.

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time.

"Fuel inflation declined to 9.6% in October from 11.1% in September, reflecting the impact of government measures to stabilize fuel prices," it said.

However, food inflation remained elevated at 10.6% in October, mainly due to depressed rainfall on some food items.

"The committee noted that the inflation expectations remained anchored within the target, and leading economic indicators showed continued robust performance," the bank said.

The economy rebounded strongly in the second quarter, as the easing of Covid-19 restrictions boosted activity. Gross domestic product grew 10.1% on year in the quarter, following a 4.7% contraction in the first quarter.

"This reflects the strong recovery of the services sector particularly transport and storage, education, information and communication, wholesale and retail trade, and the improved performance of the construction and manufacturing sectors," the bank said.

The leading economic indicators point to a continuing recovery in the second half of 2021, boosted by a full reopening of the economy, the bank said.

The committee will meet again in January, but remains ready to re-convene earlier if necessary, the bank said.