Lenders that fail to accord borrowers cheaper loans following the lowering of the Central Bank of Kenya benchmark lending rate will face steep penalties.

According to the Central Bank of Kenya (CBK) Governor Dr. Kamau Thugge, the banking sector regulator will be undertaking market inspections to ensure compliance to this call.

“The Committee observed that the CBR has been lowered substantially since the MPC meeting of August 2024, yet lending rates have only declined marginally,” he noted during a post Monetary Policy Committee meeting on Thursday.

“To ensure that banks are implementing the risk-based credit pricing model (RBCPM), CBK has embarked on onsite inspection of banks to ascertain that they are reducing their interest rates in line with the RBCPM,” he stated. 

Dr. Thugge warned that any banks that will fail to pass on the benefits of lower borrowing costs will face regulatory action. 

 “Under the amendment to the Banking Act recently enacted by Parliament, any bank that has not passed on the benefits of reduced costs of funds to reduce lending rates will be penalized in accordance with the law,” he said. 

Dr. Thugge added that despite significant reductions in the Central Bank Rate (CBR) since August last year, interest rates in the banking sector have only declined marginally. 

On Wednesday the MPC cut the key rate to an almost two-year low of 10.75 percent, down from 11.25 percent that was set in early December 2024. The industry regulator said that lowering of the rate is meant to jumpstart the sluggish economy.

He called on banks to take the necessary measures to lower borrowing rates, adding that this is critical in stimulating private-sector credit growth and revving up the economy.

The CBK Governor reaffirmed that the MPC remains vigilant in monitoring economic trends and will take further action if necessary. 

“The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate,” he stated. 

The CBK has been pushing for a reduction in lending rates to boost credit access for businesses and households, particularly following monetary policy adjustments aimed at supporting economic recovery.

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