Central Bank team spares Kenyans from high cost of accessing credit


The Central Bank of Kenya advisory committee on Tuesday voted to retain the benchmark lending rate at 11.5 per cent backing the regulator’s position that commercial banks should not raise lending rates.

The move to keep the rate flat brought certainty to a market currently going through turmoil, a fact admitted by the Monetary Policy Committee in its briefing.

“In September and October 2015, liquidity conditions were tight.the significant rise in Treasury Bill rates also reflected government domestic borrowing.

However, a notable improvement in liquidity conditions has been recorded in November, with the interbank and Treasury Bill rates declining,” a statement signed by CBK governor and MPC chairman, Dr Patrick Njoroge, said.


The move is likely to see banks come under additional pressure to cut the cost of loans following certainty in the market.

On Monday this week several banks began withdrawing notices for an intended increase in interest rates on loans in response to lower Treasury Bill rates.

The interbank rate — which banks use to lend to each other — has dropped to a single digit in weeks and is now 9.3per cent.

On October 22, the 91-day Treasury Bill peaked at 22.5per cent, with the rate at which banks were borrowing from each other hitting 25.84per cent.

Many banks had last month issued borrowers with 30-daynotices indicating their intention to increase lending rates.

Some borrowers would have had to pay loan interest rates of as much as 30 per cent largely on account of the high cost of credit driven by government borrowing.

In response to a weaker shilling and rising inflation, the Central Bank of Kenya tightened its policy stance by raising the benchmark lending rate by 3 percentage points since June, to 11.50 percent.

Inflation has since witnessed as light uptick edging up to6.72 per cent in the month of October, from 5.97per cent the previous month, mainly on account of arise in food prices according to data released by the Kenya National Bureau of Statistics.

Inflation peaked at 7.08 percent in April. Last month Treasury Cabinet Secretary, Mr Henry Rotich forecast the lowering of interest rates, backing Treasury’s projections on reduced inflation.