Kenyan Banks Under Pressure as Central Bank lowers CBR to 10%

CBK Kenya Building
CBK Kenya Building

In its first meeting since President Kenyatta signed the Banking Amendment Bill 2016 which aims to regulate bank’s loan interest rates, the Central Bank of Kenya Monetary Policy Committee met today and lowered its benchmark interest rate by 50 basis points to 10% percent, saying that demand pressures on inflation are moderate and inflation is expected to decline in the short term. 

The Bank also noted the coming into force the Banking amendment act 2016 and said that it was closely monitoring the impact of the new law on Monetary policy and the overall economy. In effect, Banks will be forced to lower their lending rates further from 14.5% to 14%.

For the past three weeks, Kenya’s Banking sector has been thrown into a confusion in regards to interpretation of the new laws as banks were left to come up with their own rules. The biggest debate has been on mobile loans if they constitute as loans or not. With all the confusion in the banking sector, the MPC did not give any comment in regards to interpretation of the new laws.

The factors reviewed include the inflation rate, which fell to 6.23% and still within the government’s target of 5%±2.5%, foreign exchange which has remained stable, forex reserves which stand at USD 7,803 Million or 5.2 months of import cover, the distribution liquidity in the banking has also improved but CBK said will closely monitor risks associated with credit and liquidity.

The Central Bank also observed decline in growth in Kenya’s private sector credit and this could pose a risk to economic growth. Generally,  the outlook of the global Economy remained weak largely as a result of slowdown in global growth, concerns about China and continued uncertainity with respect to Brexit. The Governor Dr Patrick Njoroge will tomorrow hold a press briefing to shed more light in regards to MPC’s decision to and also to highlight developments in Kenya’s Economy.

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