Research Analysts at Genghis Capital are expecting the rate cut to buoy the market as the government seeks to loosen its monetary policy and spark hopes among consumers for lower lending rates.
However the committee warned that the impact of continued volatility in international oil prices, the spill-over effects of the slowdown in global economic growth on the domestic economy, and the balance of payments pressures stemming from a high current account deficit remain the main risks to the macroeconomic outlook.
Over the last three months super petrol has risen by eight percent to the current retail price of Sh115.26 in Nairobi, which the Energy Regulatory Commission has blamed on an upward trend in the price of crude and refined petroleum products in the international market over the last three months.
However, all eyes shift to the banks that have been seemingly slow in lowering their lending rates now averaging 19 percent.
Kenya Banker’s Association Chief Executive Officer Habil Olaka said banks should lower interest further adding that the delay in reducing rates is due to the market’s slow response to the CBR movement.
“When the CBR starts coming down, banks respond to the market movement not the CBR. If the CBR moves the market does not respond banks do not respond,” he said.
Now that inflation at 4.14 percent is within the five percent target set by the Government for the fiscal year 2012/13, the exchange rate is stabilising and private sector credit growing the MPC said there was adequate space for a gradual easing of the monetary policy stance.