Kenyans will now be able to access loans at lower interest rates after the Central Bank of Kenya Monetary Policy Committee (MPC) reduced the Central bank rate (CBR) from 10% to 9.5% for the first time since September 2016.
This was the lowest level the CBR has come down to since May 2015. According to the MPC, the decision to reduce the CBR to 9.5% is accredited to several factors. With the inflation expectations still being well anchored within the government target range and there being an increased optimism for growth prospects in the economy, the economic output was still below its potential level. Therefore, despite noting the risk of perverse outcomes, the MPC concluded that there was scope for easing the monetary policy stance in order to support economic activity leading to the reduction of the CBR.
“The MPC will closely monitor the impact of this change in its policy stance. Other developments in the domestic and global economy will also be observed, and the MPC stands ready to take additional measures as necessary,” said Governor of the Central Bank of Kenya, Dr Patrick Njoroge who chairs the committee.
With the reduction in place, the maximum interest rate chargeable by banks will reduce from 14% to 13.5% in line with the interest cap rate. As according to the law, which was passed in September 2016, banks are not allowed to charge more than 4% of the CBR.
Kenyans have however been starved of credit since interest rates were capped as banks have resulted in loan access restrictions especially for small and medium enterprises as a result.
Kenya has been under pressure to amend the law for a while now. International Monetary Fund (IMF) has since placed the repeal as one of its conditions to Kenya if is to continue accessing the Sh150 billion precautionary loan that was recently extended for 6 months.