The Central Bank of Kenya (CBK) has further slashed its benchmark rate as it seeks to inject a much-needed liquidity into the sluggish economy.
In its second sitting since the scrapping of the interest rate cap, CBK’s Monetary Policy Committee (MPC) yesterday lowered the Central Bank Rate (CBR) by 0.25 percentage points from 8.50 per cent, signaling cheaper loans.
Last November, the apex bank, for the first time in more than a year, cut the CBR by 0.50 percentage points from 9.50 per cent, citing austerity measures by the National Treasury and an under-performing economy.
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“The committee assessed that the effects of lowering of the CBR in November 2019 continued to be transmitted into the economy but also noted that there was room for further accommodative monetary policy to support economic activity,” said the regulator in a statement after its MPC meeting.
MPC, which is CBK’s highest decision-making organ, noted that the prices of goods and services in the economy remained stable, increasing at a rate of 5.8 per cent in December, which is within the target range of 2.5-7.5 per cent.
The inflation was attributed to increases in food prices and transport costs during the festive period.
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“Overall, inflation is expected to remain within the target range in the near-term due to lower prices of fast-growing food items following continuous rains and lower electricity prices,” said CBK.
The banking sector regulator said banks responded positively to its signaling rate, with lenders extending loans to firms and households. As a result, private sector credit grew by 7.1 in the 12 months to December last year, compared to 6.6 per cent in October.
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The growth was mainly observed in manufacturing (9.2 per cent), trade (8.9 per cent), transport and communication (8.1 per cent) and consumer durables (26 per cent).
CBK projected that the growth in private sector credit would continue to increase owing to innovative credit offerings to small businesses, scrapping of the rate cap and the easing of credit risks.
“Growth in private sector, particularly to Micro, Small and Medium-Sized Enterprises (MSMEs) is expected to grow gradually due to the deployment of innovative MSME credit products, the repeal of the interest rate caps and the continued easing of credit risks,” said the regulator.
CBK noted that the banking sector remained “stable and resilient”, with the liquidity and capacity adequate ratios of commercial banks standing at 49.7 per cent and 18.8 per cent respectively in December.
The ratio of bad loans (those not serviced within three months) to total loans fell to 12 per cent in December from 12.3 per cent in October.
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The decrease in non-performing loans was observed in several sectors, including trade, real estate, financial services, manufacturing and personal household sectors.
This reflected upped recovery efforts by banks as well as write-offs, noted CBK.
The apex bank further warned that the risks of increased volatility in global financial markets remained high, especially on the back of US-China trade tensions and Brexit.
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