CBK to dialogue banks on rates

September 25, 2009
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, NAIROBI, Kenya, Sept 25 – The Central Bank of Kenya (CBK) has expressed its willingness to dialogue with banks and address the structural issues that hinder them from lowering their lending rates.

Governor Prof Njuguna Ndungu said on Friday that they had invited input from the banks’ heads to enable CBK understand why the institutions have been slow to reduce the interest rates despite measures to aid the same.

“There are some structural rigidities that we need to understand and we need to work on and we will be asking CEOs (Chief Executive Officers) of banks to tell us where those rigidities lie and what we need to do,” he said.

Banks have been criticised for their reluctance to bring down the rates which have been hovering around 15 percent on average despite the Central Bank Rate (CBR) having been lowered four times in the last eight months.

At a press briefing, he said the Monetary Policy Committee (MPC) had agreed to continue with the current policy stance and retain the CBR at 7.75 percent as a way of reducing the cost of credit.

Prof Ndungu also expressed confidence that the economy would improve in the last quarter of the year as the expenditure of the fiscal stimulus package gets underway.

“If the expenditure gets underway in October, it can be expected to generate significant consumer demand particularly in rural areas in the course of the fourth quarter,” he said.

The government is also banking on the anticipated El Nino rains which are expected to result in quick-growing food stuff coming into the market and thus stabilise food prices and eventually lower the inflation figures.

The on going drought has exacerbated the rise in inflation and impacted negatively on the cost of living.

“Inflation continues to be a supply side phenomenon with drought being a significant factor, since the supply side factors are short term in nature, the Committee is of the view that the upside risks to inflation are low,” the Governor observed.
 

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