Easing inflation, rising loan defaults and a stagnated economy are some of the key reasons bankers are advancing in lobbying for further interest rate cuts by the industry regulator, Central Bank of Kenya.

In their research note dated January 29, the Kenya Bankers Association (KBA) is asking the Monetary Policy Committee (MPC) of the CBK to further ease its monetary policy stance at its meeting scheduled for 5th February.

"In response to the Central Bank Rate hikes effected by CBK from June 2023 to March 2024, overall inflation has declined and remained within its target range," KBA noted.

The lobby added that inflation in Kenya is expectations are well anchored, supported by easing food and fuel prices, and muted demand pressures in the economy.

According to KBA, elevated non-performing loan (NPL) ratios across the industry continue to delay adjustments in lending rates consistent with risk-based credit pricing by banks; thereby constraining credit growth in the country.

KBA stated that following the Central Bank Rate adjustment in October last year by 75 basis points, the average interbank market rate declined by 61 basis points and the average deposit rate eased by a marginal 23 basis points as the lenders faced stiff competition from Government securities for wholesale deposits in the market. 

Another reason advanced by bankers in calling for cut in interest rate is the stagnation of the economy which has seen individuals and businesses shun loans. Kenya's economic growth slowed to 4 percent in the three months to September, attributable to weaker growth in loan uptake. 

The country's economy also suffered from dimmed positive sentiment and global uncertainties during the third quarter.

In its latest review effected in early December last year, the CBK revised Central Bank Rate (CBR) to 11.25 percent per annum.

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