Kenyans will now pay 0.5 basis points less on all commercial loans following a revision of the policy rate from 10 to 9.5 per cent, meaning Kenyans will pay 13.5 per cent on loans compared to the 14 per cent.
This is the first time the Central Bank base lending rate has been reduced since the introduction of Interest rates caps where loans were capped at 400 basis points percent above the CBK benchmark rate of 10 percentage points in August 2016.
According to the Monitory Policy Committee which met yesterday, they will continue to monitor the impact of this change in its policy stance that has remained neutral for the last 17 months.
The revision comes against the backdrop of sustained macroeconomic stability, improved weather conditions, increased optimism on the economic growth prospects, improvement in the business environment, and the continued strengthening of the global economy.
It also comes a week after Treasury Cabinet secretary declared the Commercial interest rate caps unsustainable hinting on plans to modify it without increasing lending rates.
Early this month, the International Monetary fund had called on the government to review the interest rate cap or modify it saying that it contributed to a slowdown in economic growth.
The committee said that the recently extended precautionary arrangement with the International Monetary Fund equivalent to USD989.8 million (Sh100.16 billion ) will provide an additional buffer against exogenous shocks.
While the rate was reviewed, the committee found out that private sector credit growth in the last 12 months to February 2018 grew by 2.1 per cent but was lower than the 2.4 percent in December 2017.
"The slowdown in credit growth was largely due to substantial loan repayments in the transport and communication sector," Central Bank governor Patrick Njoroge said.
Additionally, as found by the committee lending to the manufacturing, real estate, and trade sectors remained relatively strong, growing by 13.1 percent, 8.3 percent, and 5.9 percent, respectively.
Overall month-on-month inflation fell to 4.5 per cent in February 2018 from 4.8 per cent in January 2018, thereby remaining within the Government target range.This decline reflected lower food prices particularly for Irish potatoes, cabbages, and sugar.
Njoroge said that due to expectations of contained food prices following improved weather conditions the overall inflation is expected to be within the Government target range in the near term.
The decrease in food prices outweighed the increase in fuel prices as a result of the rise in international oil prices.The foreign exchange market remains stable supported by a narrower current account deficit and improved investor confidence in the economy.