The report indicates that the spread between the benchmark and the commercial bank rate stands at lows last witnessed in December 2012 and has been on a downtrend since the first quarter of 2014.
According to the report however, the rates are not likely to go lower owing to the government’s appetite for domestic debt.
“It is unlikely that the country will experience further lowering of the benchmark rate in the near term as the government keeps an eye on inflation that stands at 7. 1 percent at the end of April 2015,” the report stated.
Revenue collection could nonetheless cushion high cost of credit if the 2013/2014 revenue collection performance is replicated in 2014/2015.
“In 2013/2014, the revenue authority mobilised $10.3 billion on the back of a review the country Value Added Tax regime, “says the report.
The report states Kenyan borrowers remain largely unaware of pricing differences between various banks despite introduction of Kenya Banks Reference Rate in June 2014 aimed at facilitating transparency in credit pricing.
The shilling is expected to remain weak in the second quarter of 2015 trending towards 94 and 96 units of exchange to the dollar.
“We expect the Central Bank of Kenya (CBK) to take a more aggressive stance than it has been doing in March and April 2015 to pomp the local unit considering the potential inflationary effects of a weakening shilling,” the report indicates.
The shilling has been under pressure in the recent past owing to the strengthening of the dollar and a weak balance of payments domestically.
In 2014, Kenya’s merchandise trade deficit continued to widen due to high import bill with the import bill increasing by 14.5 percent that led to export import ratio deteriorating from 35.5 percent in 2013 to 33.2 percent in 2014 according to latest statistics from the Kenya National Bureau of Statistics (KNBS).
Meanwhile, the CBK has assured of the shilling’s stability despite pressure from the US dollar, pointing out that it has enough foreign reserves that will cushion volatility of the Kenya shilling exchange.
The bank says it has adequate foreign exchange reserves in excess of 4.5 months of imports to cushion the exchange rate against these short term shocks and volatility,
The regulator says it is closely monitoring development in the foreign exchange market and will continue to use appropriate monetary policy to minimize volatility of the shilling.