Kenya's Central Bank slashes Lending Rate by 3.5 percentage points

Sep 10, 2012

The Central Bank of Kenya (CBK) has just slashed its lending rate by 3.5 percentage points to 13 per cent from 16.5 per cent, in a bid to lower the cost of credit and boost economic growth.

The Central Bank of Kenya (CBK) has just slashed its lending rate by 3.5 percentage points to 13 per cent from 16.5 per cent, in a bid to lower the cost of credit and boost economic growth. The CBK is expecting banks to pass on this reduction and lower their lending rates to make credit more affordable for consumers and businesses across the country. In recent months, the Central Bank had made several attempts to lower the cost of credit by reducing its rate, but according to CBK governor Njuguna Ndung'u, "the interest rate spreads remained high, suggesting that these cost reductions had yet to be fully transferred to bank customers and the economy at large through declining cost of credit", The Daily Star reports. It is expected that this latest sharp reduction will have a stronger impact on the price of lending. This time, "the coming down (of interest rates) may be more aggressive than what we have seen," Habil Olaka, the chief executive officer at the Kenya Bankers Association, told the Daily Star. "The banks react to the market. When the market comes down, banks come down", he added. Financial institutions in sub-Saharan Africa are often finding it difficult to pass on central banks' rate cuts in their lending practice cycles. According to Les Afriques newspaper, this gap between rates on financial markets and those charged to customers are primarily structural, due to a lack of competition in the banking sector, low capital assets within financial institutions, as well as a lack of access to credit information.