BANKING

CBK cuts base lending rate to 7% to cushion economy

In Summary
  • The apex bank noted policy measures adopted in March were having the intended effect on the economy, and are still being transmitted, thus the further cuts.
  • Private sector credit grew by 8.9 per cent in the 12 months to March 2020 supported by the lowering of the lending rate by commercial banks in response to the reduction in the CBR.
CBK governor Patrick Njoroge
CBK governor Patrick Njoroge
Image: ENOS TECHE

The Monetary Policy Committee has lowered the base lending rate to 7 per cent from 7.25 per cent, in light of the continuing adverse economic outlook due to he cronavirus.

“The MPC decided to augment its accommodative monetary policy stance and therefore decided to lower the Central Bank Rate (CBR) to 7.00 percent from 7.25 percent,” Central Bank of Kenya governor Patrick Njoroge said in a statement on Wednesday.

 In March,the MPC lowered the base lending rate to 7.25 percent from 8.25 percent.

The apex bank noted policy measures adopted in March were having the intended effect on the economy, and are still being transmitted, thus the further cuts.

Private sector credit grew by 8.9 per cent in the 12 months to March 2020 supported by the lowering of the lending rate by commercial banks in response to the reduction in the CBR.

“Improvement in liquidity and credit market conditions following the reduction in the Cash Reserve Ratio deployed in March  also supported access to credit and loan repayments by customers that were distressed as a result of Covid-19,” Njoroge said.

As a result of the reduction in CRR in March, 43.5 per cent of the funds released to the banking system have been utilised so far, with the tourism, real estate, trade and agriculture sectors being the main beneficiaries.

CBK reminded borrowers who are facing Covid-19-related challenges, whose loans were performing on March 2, to approach their banks and discuss restructuring options.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 12.5 per cent in March compared to 12.7 per cent in February, mainly reflecting stronger growth in gross loans relative to NPLs.

Noting the critical role of Micro Small and Medium sized Enterprises (MSMEs) in the economy, the apex bank noted the urgent need for more interventions to support the sector

The committee forecast economic growth of 2.3 per cent this year, down from its March forecast of 3.4 per cent, and from its estimate of 6.2 per cent earlier this year. 

The current account deficit is expected to remain at 5.8 per cent in 2020 due to the c0ronavirus, with the lower oil imports more than offsetting the projected reduction in remittances.

Overall inflation is expected to remain within the target range in the near term, despite the disruptions occasioned by the pandemic.

This is supported by the favourable weather conditions,lower international oil prices, and the reduction of Value Added Tax (VAT) from 16 per cent to 14 per cent.

"The MPC will meet again in a month and stands ready to take additional measures as necessary,” Njoroge said.