Banks to lower their interest rates to 14pc after CBK cuts CBR

September 20, 2016
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Central Bank Governor Patrick Njoroge, who is also the MPC Chairman says the move to lower CBR by 50 basis points was due to the concerns of declining private sector credit growth/FILE
Central Bank Governor Patrick Njoroge, who is also the MPC Chairman says the move to lower CBR by 50 basis points was due to the concerns of declining private sector credit growth/FILE

, NAIROBI, Kenya, Sep 20 –Local banks may now be forced to further lower their interest rates to 14 percent from the current 14.5 percent after the Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) lowered the Central Bank Rate (CBR) to 10 percent.

This comes a few weeks after the banks dropped their rates to 14.5 percent in accordance with the new interest rates law approved by President Uhuru Kenyatta on August 24. The law requires banks to cap their interest rates, 4 percent above the base rate set by the Central Bank.

Central Bank Governor Patrick Njoroge, who is also the MPC Chairman says the move to lower CBR by 50 basis points was due to the concerns of declining private sector credit growth.

“The committee observed that demand pressures on inflation are moderate and inflation is expected in the short term, but committee remains concerned about the persistent slowdown in private sector credit growth,” Njoroge said after the MPC meeting on Tuesday.

However the MPC noted that the latest Market Perception Survey conducted this month showed that the private sector remains optimistic for an improved business environment in 2016, supported by macroeconomic stability, public investment in infrastructure, improved agricultural performance and a further recovery in tourism.

Early this month, local banks unanimously agreed to lower their interest rates to 14.5 percent, despite earlier hesitating that they would only do so after specific guidelines were given by CBK.

However, through the Kenya Bankers Association (KBA), they agreed to re-price interest rates for both existing and new loans to 14.5 percent following the new banking law.

All eyes will now be on the banks to see if they will follow suit, few days after they announced their commitment to the new law.

“The MPC noted the coming into force of the banking (Amendment) Act 2016, on September 14, 2016. The CBK is closely monitoring the impact of the new law on monetary policy and on the overall economy,” Njoroge said.

Many banks have been in the process of getting in touch with their customers on the process and new terms, as the industry continues to engage with CBK on implementation of the new law.

Central Bank has previously maintained that the interest rates should be capped using CBR and not the Kenya Banks Reference Rate (KBRR).

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