Nairobi — A move by Central Bank of Kenya to enhance its effectiveness in the market could see the private sector access more credit, spurring the country's economic growth.
This, the Bank says, is being done through the introduction of currency centres across the country, use of credit reference bureaux and introduction of longer-debted bonds to the market.
The move is projected to boost credit availability to the private sector, and therefore corroborate the cut on Central Bank rates (CBR) that monetary policy committee (MPC) has been pursuing for some time now. Last week, MPC recommended to the Bank that despite a gradual reduction in CBR, the transmission from short term interest rates to commercial bank lending rates was still weak "and hence had failed to yield the benefits expected."The credit reference bureaux are expected to increase lending capacity of commercial banks to the private sector through the provision of credit history of the potential lender while the centres will serve those banks out of Nairobi that want to deposit or withdraw money from the central bank.
This is expected to drastically cut on transaction costs of coming to central bank in Nairobi.
According to the Central Bank governor who is also the MPC chairman Njuguna Ndung'u, the structure of the commercial banks' credit market was a major hindrance to the transmission mechanism of monetary signals.
At the release of the MPC meeting report last week, Prof Ndung'u said that the committee's previous decisions to reduce the CBR has successfully signalled a reduction in short term interest rates and an expansion of private sector credit.
As a result, the committee said the current CBR level of seven per cent is appropriate to consolidate its direction of monetary policy, which is to spur economic growth.
"The recent signals to keep interest rates low have borne fruit with the short term interest rates declining significantly between May and December last year.
The repo market rate declined from 6.4 per cent in December 2009. Similarly, the interbank and 91-day treasury bill rates declined from 5.6 per cent and 7.5 per cent to three per cent and 6.8 per cent respectively, during the period." Prof Ndung'u said.