This archive report was first published on 24 July 2019.
On July 24, 2019, the Central Bank of Kenya (CBK) made a crucial decision that would impact the country's economy for months to come. In a move that would spare borrowers from higher loan costs, the CBK retained its benchmark lending rate at 9.0% for the seventh time in a row.
According to the Monetary Policy Committee, the decision was made in an environment where inflation expectations were within the target range and the economy was operating close to its potential. However, CBK Governor Patrick Njoroge cautioned that the committee needed to be vigilant on the possible effects of recent increases in fuel prices, the ongoing demonetisation, and the increased uncertainties in the external environment.
Despite the cautious tone, the CBK's decision was seen as a positive development for the economy. The private sector credit had grown by 5.2% in the year to June, compared to 4.4% in May. However, this growth remained well below the central bank's target rate of 12-15%, a growth adequate to support economic development.
Bankers have attributed the slow credit growth to the cap limiting commercial lending rates to four percentage points above the benchmark. This has forced them to cut back on loans to high-risk groups, with normal bank lending capped at 13%.
