For the fourth consecutive time, the Central Bank of Kenya (CBK) has reduced its lending rates, bringing them down from 11.25% to 10.75%.
The 50 basis points cut effectively means that interest rates charged on loans will be cheaper. CBK Governor, Kamau Thugge pointed out that banks are expected to comply and stem down their lending rates further.
“With these measures, banks are expected to take the necessary steps to lower their lending rates further, to stimulate growth in credit to the private sector and support economic activity,” he said.
CBK’s Monetary Policy Committee (MPC) have slashed the Cash Reserve Ratio (CRR) by 100 basis, from 4.25% to 3.25%. The governor noted that the decision was motivated to support economic activity and ensure a steady exchange rate in Kenya.
Currently, Kenya’s Forex reserves are at $9,006 million, a safe amount to provide Kenya with a buffer against short-term Foreign exchange market volatilities.
“The MPC noted that the reduction in the CRR will release additional liquidity to banks. This is expected to lower the cost of funds and lending rates and support the growth of credit to the private sector,” Thugge noted.
However, some banks are non-compliant with the committee’s directive, lowering their rates only marginally. Reports indicate that out of 38 licensed and regulated commercial banks, only 23 have adhered to the Central Bank of Kenya’s policy by reducing their lending rates.
14 other lenders slightly increased their lending rates, while 1 bank maintained its margins, thereby defying the CBK directive. The banking regulator stated that it would commence on-site inspections to ensure that lending rates align with the Risk-Based Credit Pricing Model (RBCPM).
“Under the amendments to the Banking Act recently enacted by Parliament, any bank that has not passed on the benefits of reduced cost of funds to reduce lending rates will be penalised in accordance with the law,” Kamau Thugge sent a stern caution to banks.
The Monetary Policy Committee (MPC) is scheduled to meet again in April. In the meantime, it will monitor the impact of the enacted policy measures along with developments in both the local and global economy.
The committee also noted that Kenya’s inflation rate increased by 0.3% in January, rising from 3.0% in December 2024, and affirmed that the economy is on a steady recovery trajectory.
