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CBK retains base lending rate at 7 per cent

Continues to monitor impact of Covid-19

In Summary

•The indicators for the second quarter (April-June) suggest that the impact of Covid-19 on the economy was most pronounced in April.

•The measures by the government to cushion businesses and households continue to moderate the impact of the pandemic, CBK Governor Njoroge said.

CBK Governor Patrick Njoroge has accused the Judiciary of delaying the recovery of Chase Bank cash. /FILE
CBK Governor Patrick Njoroge has accused the Judiciary of delaying the recovery of Chase Bank cash. /FILE

The Monetary Policy Committee has for the second time retained the base lending rate at seven per cent, citing the impact of the  Covid-19 pandemic on the economy.

Central Bank of Kenya Governor Patrick Njoroge, who heads the committee, Thursday said the policy measures adopted since March were having the intended effect on the economy, and will be augmented by fiscal measures in place.

The Central Bank Rate was cut from 7.25 per cent in April.

 

The indicators for the second quarter (April-June) suggest that the impact of Covid-19 on the economy was most pronounced in April, with evidence of recovery in May supported by improved agricultural output and exports, although the services sector remains subdued.

The measures by the government to cushion businesses and households continue to moderate the impact of the pandemic, Njoroge said.

Overall inflation is expected to remain within the target range in the near term.

This is supported by improving food supply due to favourable weather conditions, lower international oil prices, the impact of the reduction of VAT and muted demand pressures.

In line with the emergency measures announced by CBK on March 18, to provide relief to borrowers, the repayment period of personal or household loans amounting to Sh199.1 billion (25 per cent of the gross loans to this sector), had been extended by the end of May.

For other sectors, a total of Sh480.6 billion had been restructured mainly to trade (23.7 per cent), real estate (20.6 per cent), tourism (12.5 per cent), transport and communication (11.2 per cent) and manufacturing (10.6 per cent).

 

Total loans that have been restructured are worth Sh 679.6 billion and accounted for 23.4 per cent of the total banking sector loan book of Sh2.9 trillion.

Lowering of the Cash Reserve Ratio (CRR) in March released Sh35.2 billion to the banking sector, giving lenders more liquidity to extend to borrowers.

Sh30.8 billion of the funds (87.6 per cent) has been used to support lending, especially to the tourism, transport and communication, real estate, trade and manufacturing sectors.

“These measures have provided the intended relief to borrowers,” Njoroge said.

On Wednesday, CBK extended measures to facilitate mobile money transactions for another six months.

This includes free mobile money transactions of up to Sh1,000 adopted in March.

There also will be no charge by payment service providers and commercial banks for transfers between mobile money wallets and bank accounts.

“MPC concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 per cent,” Njoroge said.

He said the MPC will continue to closely monitor the impact of the policy measures so far, as well as developments in the global and domestic economy, and stands ready to take additional measures as necessary. It is expected to reconvene within one month.

Meanwhile, the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios, Njoroge said.

The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.0 per cent in May, compared to 13.1 per cent in April.

Repayments and recoveries in the trade, manufacturing and real estate sectors were noted.

Private sector credit grew by 8.1 per cent in the 12 months to May. This growth was observed mainly in manufacturing (18.6 per cent), trade (8.2 per cent), finance and insurance (7.2 per cent), building and construction (5.7 per cent), and consumer durables (16.7 per cent).

“ The operationalisation of the prospective Credit Guarantee Scheme for the vulnerable Micro, Small and Medium sized Enterprises , which will de-risk lending by commercial banks, is critical to increasing credit to this sector,” the committee noted.