Expectations are high from borrowers who feel that banks will reduce their lending rates in line with the expected drop in the CBR.
Independent financial analyst Aly Khan Satchu says the CBK has room to reduce the rate to even a single digit from the current 11 percent due to the favourable economic environment especially the continued drop in inflation.
The inflation rate in December last year reduced to 3.20 percent from 3.25 in November.
“A rate cut is a given in my view. The CBR is 780 basis points above the Inflation Rate and this gives the MPC room for manoeuvre. I expect a minimum of 100 basis points,” Satchu told Capital FM Business.
Some of the measures that the financial regulator considers while making changes in the CBR, is the rate of inflation, the exchange rate, liquidity, and rise in Gross Domestic Product, all of which he says looks positive.
He however argues that the MPC maybe also be a bit cautious to lower the CBR and instead decide to keep it at 11 percent.
“The MPC might not care to pull the trigger so early in the year,” Satchu added.
He however opines that the banks still have many excuses not lower the lending rate despite the continued drop in CBR.
“Lending rates have remained stubbornly high. The banks followed the Central Bank on the way up and with alacrity but have been very slow to follow the Central Bank downwards. And these high lending rates have proven a steep toll charge on the economy as evidenced by the weak GDP outcome notwithstanding a little bounce in quarter three,” he said.
On his part, Kenya Bankers Association CEO Habil Olaka feels the CBK may decide to maintain its rate to first watch the economical risks especially associated with the coming general elections.
He said maintaining the rate would also be a signal of economic stability.
“You know the committee does its review after every two months so it may decide to see how the campaigns go. I also urge the banks to not only wait for the CBR rate changes, but focus on other measures to enable them lower the lending rates,” Olaka said.