Loan relief in sight as CBK cuts key rate
Borrowers in Kenya are expected to get a marginal relief on the cost of loans following the Central Bank’s move to slash the base lending rate to 12.75 percent from a higher 13 percent.
Central Bank Governor Dr Kamau Thugge noted that the MPC met against a backdrop of an improved global outlook for growth, easing inflation in advanced economies, amid persistent geopolitical tensions.
Dr Thugge observed that non-food-non-fuel inflation in Kenya has moderated, while central banks in some major economies have lowered interest rates in response to the easing inflationary pressures, with indications that other central banks will soon embark on a similar trajectory.
The cut, the first in a span of about four years, comes at a time when the ratio of non-performing loans in Kenya’s banking sector shot up to 16.3 percent in June compared to 16.1 percent reported in April.
“The increase is mainly attributed to a decrease in gross loans between the two periods of 1.5 percent compared to a lower decrease in NPLs by 0.7 percent,” a statement signed by CBK Governor, Dr Kamau Thugge, stated.
“Decreases in NPLs were noted in the real estate, manufacturing, trade and building, agriculture and transport and communication sectors.”
According to the CBK, lending to the private sector stood at 4 percent in June, compared to 4.5 percent in May, “partly reflecting exchange rate valuation effects of foreign currency denominated loans following appreciation of the Shilling.”
At the same time Kenya Shilling denominated loans increased by 10.2 percent in June, CBK said.
Kenya’s inflation cooled to 4.3 percent in July from 4.6 percent in June driven primarily by a drop in the prices of key food items such as maize, sugar, and wheat flour. This drop in prices helped offset price upswings in select vegetables, including tomatoes, potatoes, and cabbages.
Additionally, fuel inflation decreased to 4.5 percent in July from 6.4 percent in June largely due to lowering of pump prices as well as the cooling of electricity bills.
“Overall inflation is expected to remain below the mid-point of the target range in the near term, supported by a stable exchange rate, lower food prices with expected harvests, and stable fuel prices,” Dr Thugge added.
