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CBK maintains rate at 10pc to counter expected inflation

The regulator has also suspended the Kenya Bankers Reference Rate /FILE

NAIROBI, Kenya, Jan 30 – CBK’s Monetary Policy Committee has left the crucial Central Bank Rate unchanged at 10 percent effectively leaving lending rates at 14 percent.

The committee says the rate has been maintained to buffer inflation expectations after increased uncertainties with regard to the prevailing drought conditions and risks in the global markets.

“Food inflation remained elevated in December, particularly for tomatoes, sugar, cabbages, kales (sukuma wiki), and maize flour, due to the prevailing unusually dry weather conditions. Food and electricity prices are expected to remain elevated in the near term,” said a statement from MPC.

However, month-on-month inflation declined to 6.4 percent in December from 6.7 percent in November 2016.

The regulator has also suspended the Kenya Bankers Reference Rate which was introduced to control interest rates in view of the enactment of the Banking Amendment Act which caps commercial interest rates at 4 percent above the CBK rate.

CBK says it will continue to closely monitor and assess the impact of the interest rate caps as the available data is inconclusive for evaluating full impact in the banking sector.

A notable concern with the interest rate capping is the reduced lending to the productive private sector which the committee termed as ‘stable’.

“Private sector credit growth stabilized at 4.3 percent in December, 2016 driven by lending to trade, real estate, private households and consumer durables. The CBK will continue to closely monitor credit and liquidity risks in the sector,” notes the committee.

The average commercial banks’ liquidity ratio and capital adequacy ratios stood at 41.4 percent and 18.7 percent, respectively, in December 2016.

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