Kenya’s Central Bank has today announced the reduction of the benchmark lending rate (CBR) to 8.5% from the previous 9.0% for the first time since July 2018.
The bank took note that inflation expectations remained well anchored within the target range, and assessed that the economy was operating below its potential level. Furthermore, the Committee noted the ongoing tightening of fiscal policy and concluded there was room for accommodative monetary policy to support economic activity. The meeting was held against a backdrop of domestic macroeconomic stability, the recent repeal of interest rate caps, and heightened global uncertainties and volatility in international markets.
Through a statement by Central Bank Governor Dr. Patrick Njoroge, the bank said the foreign exchange market has remained stable, supported by the narrowing current account deficit and increased portfolio and other investment inflows with the deficit narrowed to 4.1 percent of GDP in the 12 months to September 2019 from 5.1 percent in September 2018.
The CBK foreign exchange reserves, which currently stand at USD8,794 million (5.5 months of import cover), continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market.Private sector credit grew by 6.6 percent in the 12 months to October, compared to 7.0 percent in September. Strong growth in credit to the private sector was observed in the following sectors: trade (8.5 percent); finance and insurance (15.1 percent.
The MPC believes the banking sector remains stable and resilient. Average commercial banks’ liquidity and capital adequacy ratios stood at 51.2 percent and 18.3 percent, respectively, in October. The ratio of gross non-performing loans (NPLs) to gross loans declined marginally to 12.3 percent in October from 12.6 percent in August. The Committee welcomed the repeal of the interest rate caps on commercial bank loans, noting that they had led to a significant rationing of credit, particularly to the most vulnerable. It noted that this reform should restore the clarity of monetary policy decisions and strengthen the transmission of monetary policy