Banks have begun adjusting the price charged for loans to borrowers, a trend that is expected to pile pressure on most households that are already dealing with the rising cost of living and new taxes as well as levies.
- Equity Bank- one of the largest lenders by balance sheet size, is the first lender to raise its base lending rate from 17.56% to 18.24%.
- The lender said the final interest rate shall be the base rate plus a margin of 8.5% to apply to all new Kenya Shilling credit facilities.
- Other banks are expected to take a cue from Equity Bank and adjust their base lending rates to match the recent hike of the key lending rate by the Central Bank of Kenya (CBK).
“Equity Bank wishes to notify its customers and the general public that the Bank Shall, effective 20th February 2024, adjust the Equity Bank’s Reference Rate (EBRR) from the current 17.565 to 18.24%. Consequently, the final interest shall be 18.24% plus a margin-currently at a maximum of 8.5% per annum,” said the notice in part.
At its February 6th 2024 meeting, the Monetary Policy Committee(MPC), a top policy organ of the CBK, raised the Central Bank Rate (CBR) from 12.55 to 13%. This adjustment in the CBR follows an earlier one in December 2023 when the CBK raised the key lending rate from 10.5% to 12.5%.
The CBK defended its February CBR hike on the basis that overall inflation had remained sticky in the upper bound of the target range. The MPC further observed that all key components of inflation— including fuel, food, and other non-fuel non-food items experienced increased prices in January. In addition, the MPC noted the continued, albeit reduced pressures on the exchange rate and, therefore, concluded that further action was needed to stabilize prices.
- The proposed action was to ensure that inflationary expectations remain anchored while setting inflation on a firm downward path towards the 5.0 percent mid-point of the target range, as well as addressing residual pressures on the exchange rate.
- CBK said its unexpected increase in the key lending rate was aimed at preventing USD hoarding as the Kenya Shilling edges towards the 155 mark against the greenback. This trend has since reversed with the local unit gains and holders of the greenback dump them.
- This latest credit squeeze by banks is expected to hurt access to loans for individuals and companies, with borrowers set to feel the financial pain of costly loans.
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