MPC

CBK likely to remove minimum lending rate

In Summary
  • CBK’s monetary committee likely to remove the minimum lending rate
  • It is likely to go back to KBRR which allows consumers to have a low-risk benchmark when comparing the pricing of loan products
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Central bank governor Partick Njoroge speaks to journalists during a press conference at central bank Nairobi on June 20, 2019.
Image: EZEKIEL AMING'A

The Monitory Committee Policy is likely to remove the Central Bank Rate (CBR) when it meets today, weeks after the interest cap law on commercial banks loans was scrapped.

The CBR rate, which is currently at nine per cent, has been guiding interest on commercial loans, which were limited at four per cent above the apex bank’s rate.

According to a banking analyst Frank Amayi, the repeal of interest cap law is likely to see the return of Kenya Bank Reference Rate (KBRR), which was, applied pre interest cap regime.

‘’Given that Treasury bills are the lowest risk assets in the economy, the difference between these and banks’ lending rates is the price on the riskiness of loans. Interest cap was a policy intervention to cut the cost of credit,’’ Amayi said.

The KBRR is the average of the lowest interest rate charged by the CBK on loans to banks and the 91-day Treasury Bill rate, which can be thought of as the equivalent of the risk-free rate in the economy.

It allows consumers to have a low-risk benchmark when comparing the pricing of loan products.

Before the cap law was introduced in September 2016, the average lending rate in Kenya was 18 per cent.

Early this month, Kenya Bankers Association’s chair Joshua Oigara said banks would raise interests by up to three per cent from the current limit of 13 per cent, meaning the highest rate will be 16 per cent.

All eyes are now on the apex bank as it meets in the wake of positive economic sentiment from the International Monetary Fund (IMF), which has been pushing for the scrapping of the cap law.