THE Central Bank yesterday retained its key lending rate for the fourth consecutive time, signalling banks not to increase the prevailing interest rates on short-term loans.
Governor Patrick Njoroge, who chairs the Monetary Policy Committee, said the decision was taken to “anchor inflation expectations and enhance the credibility of its policy stance”.
The Central Bank Rate – the minimum charges to banks borrowing from the CBK as last resort – has been steady since being raised by 150 basis points to 11.5 per cent when Njoroge chaired his first MPC meeting on July 9.
The nine-member committee noted average lending rates, excluding fees, commissions and other charges, dropped slightly to 17.9 per cent last month from 18.3 per cent in December.
“The CBK continues to urge banks to reduce their operating costs and enhance transparency in the pricing of credit,” Njoroge said in a statement. “In this respect, the CBK has commenced the quarterly publication of individual banks’ lending rates across loan categories and maturities.”
The MPC, however, expressed concern over rising bad debt, which increases the 41-bank industry's credit risk – a key determinant in pricing of loans.
“Liquidity in banks and its distribution has normalised, but further work is needed to strengthen liquidity management and operations of the interbank market,” Njoroge said.
The shilling has appreciated by 0.90 per cent to 101.46 units against the dollar through yesterday's opening trading session by commercial banks since the MPC's last meeting on January 20.
The currency has been helped by narrowing current account deficit to about 6.9 per cent of the national wealth, gradually improving exports, strong diaspora remittances and a lower oil import bill.
The MPC noted the $7.38 billion (Sh748.77 billion) in dollar stock would cushion the shilling from demand pressures from the dollar, while unforeseen shocks will be ironed out by the $1.5 billion (Sh152.19 billion) standby facility from the IMF secured on March 14.
Headline inflation – the average change in prices of goods and services year-on-year – has remained within the 2.5 and 7.5 per cent government target band, having slowed to 6.84 per cent last month from 7.78 per cent in January.
The decision was within expectations of the analysts, who had forecast a 0.5 percentage reduction at most.
“We believe it is in the best interest of the country’s economic stability to maintain CBR at current levels,” upstart fund manager Cytonn Investments said in a note ahead of the MPC meeting.
The six-month average CBR and two-month average yield for 91-day Treasury bill are used in calculating the Kenya Banks Reference Rate – the industry wide base rate used in pricing of loans.
A steady CBR, Cytonn said, would help manage possible near-term shocks including tax-driven inflation, pressure on the shilling in the run-up to corporates paying dividends, repayment foreign debt and higher interest rates driven by increased domestic borrowing.