10 November 2012

Kenya: Banks Face Pressure, CBR Dips

Nairobi — Banks in Kenya will come under more increased pressure to lower their lending rates after a move by the Central Bank of Kenya (CBK) to further reduced the basic rate.

CBK's Monetary Policy Committee (MPC) moved to further reduce the basic rate by 200 basis points bringing it down to 11%. The Central Bank Rate (CBR) has been on a sustained downward trend for the last six months.

The move, coupled with the slowing inflation will apart from piling pressure on the local commercial banks help in stabilizing the Kenyan shilling as well as boosting the economy in the wake of an impending general election.

Lending rates in Kenya had skyrocketed to as high as 28 per cent among some commercial banks prompting a slug in borrowing and general economic growth.

In releasing the new rate, the Monetary Committed however pointed out that the macroeconomic outlook was still under threat from a combination of variables among them the continued volatility in international oil prices, the spill-over effects of the slowdown in global economic growth on the domestic economy, and the balance of payments pressures as a result of a high current deficit.

"Even with the friendly lending rates emanating from this cut, our economy is still vulnerable to a number of risks calling for a careful planning around the macroeconomic policies," read the statement in part.

The price of oil in Kenya has been on a steady and sustained climb for the last two months spurring fears that it could easily erode the gains made in containing inflation to single digit figures.

The Kenyan inflation currently stands at 4.14 percent with all indications that the economy is on the right path.

Commercial banks have been slow to implement the reduce rates touching off a public outcry in what appears as a scheme to mint maximum profits at the expense of borrowers.

A fortnight ago, the Ministry of Finance threatened to crack the whip on the rogue banks unless they lowered the rates to reflect the reduced Central Bank Rate. Currently, banks are lending at an average of 19, which is still way above the recommended 16 percent.

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