RESPONSE TO VIRUS

CBK cuts base lending rate to 7.25% from 8.25%

Minimise economic, financial impact of virus on businesses and individuals

In Summary

•Spread of the disease is expected to stunt economic growth this year, from an estimated 6.2 per cent, down to 3.4 per cent

• To increase liquidity among local lenders, the MPC announced it would also reduce the Cash Reserve Ration to 4.25 per cent from 5.25 per cent

CBK governor Patrick Njoroge./FILE
CBK governor Patrick Njoroge./FILE

The Central Bank of Kenya has lowered the base lending rate to 7.25 per cent to offset the negative effects of the coronavirus spread.

CBK’s top decision-maker, the Monetary Policy Committee. on Monday sliced the Central Bank Rate (CBR) from 8.25 per cent set during the January sitting.

“While the extent of the adverse effects of the pandemic on the Kenyan economy is still evolving, it is already evident that the impact may be severe,” CBK Governor Patrick Njoroge said in a statement.

The decision is aimed at minimising the economic and financial impact of the Covid-19  pandemic on businesses as well as individuals.

Spread of the disease is expect slash economic growth this year, from an estimated 6.2 per cent, down to 3.4 per cent.

This is as a result of subdued demand for goods and services by Kenya’s key trading partners, disruptions in the supply chain and local production.

“The fundamental concerns and anxieties centre on the health impact, job losses, and duration of the crisis. The ongoing interventions by the government are aimed at containing the pandemic and moderating the economic and social impact,” Njoroge said.

In order to increase liquidity among local lenders, the MPC announced it would also reduce the Cash Reserve Ration to 4.25 per cent from 5.25 per cent.

As a result, this will release Sh35.2 billion to banks for onward lending to borrowers, especially those distressed as a result of the coronavirus.

Last month, average commercial banks’ liquidity and capital adequacy ratios stood at 51.1 per cent and 18.7 per cent, respectively.

The ratio of gross non-performing loans (NPLs) to gross loans increased to 12.7 per cent last month compared to 12.0 per cent in December. This reflects increases in NPLs in the manufacturing, energy and personal/household sectors.

“Additionally, CBK will ensure that the interbank market and liquidity management across the sector continue to function smoothly,” Njoroge said.

The Committee decided to reconvene next month for an early assessment of the

(Edited by V. Graham)