Lending rates to fall even further, says Njoroge

Lending rates are expected to fall further in the coming months, Central Bank of Kenya Governor, Patrick Njoroge has said. Speaking barely a day after the regulator chose to maintain its benchmark lending rate at 10 per cent, the Governor said that lending is expected to slow down following the CBK’s recent introduction of an interest rate cap.

Lenders had stated that the introduction of the cap, which sets commercial bank rates at 400 basis points above the benchmark rate, would prompt them to be more restrictive with their lending. Following the introduction of the Bill, it has emerged that banks have lent Sh103 billion less to the private sector this year, as compared to 2015.

The announcement comes just after the Monetary Policy Committee (MPC) held its meeting on Monday, having retained the Central Bank lending rate at 10 per cent owing to mild inflationary pressures and a stable foreign exchange market.

The move will see banks lending rates remain at 14 per cent. The committee also observed that inflation will remain within the government’s target of 2.5 per cent to 7.5 per cent in the short term.

Inflation increased to 6.5 per cent in October 2016 from 6.3 per cent in September due to changes in prices of food items such as tomatoes and sugar. According to the committee the available data is inaccurate to facilitate an analysis on the impact of the monetary policy following the introduction of interest rates cap on banks’ lending and deposits. The committee says the Central Bank will continue to monitor credit and liquidity risks in the sector.

 

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