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CBK keen on lower rates in Kenya

NAIROBI, Kenya, Mar 26 – The Central Bank of Kenya (CBK) has said that it will continue to undertake supportive measures that will lead to the lowering of interest rates in the market in order to stimulate access to credit for the private sector.

CBK Governor Prof Njuguna Ndungu said that he was hopeful that measures such as lowering of Central Bank Rate (CBR) would send the right signals to the market and eventually lead to a reduction of interest rates in the short and long term.

“The direction and magnitude of movements of the CBR will send appropriate signals to the market as inflation is not a significant threat, this policy stance aims to stimulate the supply of credit that will support economic growth and anchor inflation expectations,” he said.

His remarks came a few days after the Monetary Policy Committee (MPC) for the sixth time in recent months cut the CBR by 25 basis points to 6.75 percent although this has not translated to competitive lending rates.

Loans to the private sector grew by a mere 1.6 percent against a demand of 10 percent, between December 2009 and February 2010 in what a report released by the Committee showed was due to  the high cost of funds and credit risks.

The banking industry has however blamed their reluctance to slash rates on the structural rigidities in credit supply which they argue can only be solved by having longer term loans.

The Governor, who’s also the Chairman of the MPC however reiterated that enhanced supply of credit and monetary policy support and other initiatives such as the implementation of the Economic Stimulus Program would be upheld to assist the economy which although showing signs of recovery is still fragile.

The government has had to revise its domestic borrowing program to factor in implementation of frameworks such as the Economic Stimulus Package through which Sh22 billion was forecasted to be spent on various projects in a bid to jumpstart the economy.

The initial (borrowing) target in the 2009/2010 budget was Sh109 billion but this has now been adjusted to Sh150 billion.

He however said the government does not intend to borrow any more funds for example through the infrastructure bond program until the end of the financial year in June.

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On Wednesday, Finance Permanent Secretary Joseph Kinyua said although the government was still within its borrowing targets, he projected that Treasury might surpass these limits by the end of this fiscal year as the government moves to cater for development needs that were not planned for in the 2009/2010 budget.

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