The Central Bank of Kenya (CBK) has slashed interest rates by 75 basis points to 11.75% and is intensifying its push for banks to lower lending rates. The cut marks the third rate cut in 2024 and the lowest level since the COVID-19 pandemic began in 2020.
“The committee observed that short-term rates on government securities had declined sharply in line with the CBR, but banks had not responded by lowering their rates proportionately,” Kamau Thugge, the CBK governor, said Thursday after the Monetary Policy Committee (MPC).
“The MPC, therefore, urges the banks to take necessary steps to lower their lending rates, in order to stimulate credit to the private sector, and thereby stimulate more economic activity.”
Thugge’s directive follows that 17 of Kenya’s 38 licenced commercial banks failed to lower interest rates in October despite mounting pressure from the CBK and the treasury ministry to reduce borrowing costs.
CBK data from December 1 shows that the average bank lending rate slightly dropped to 16.87% in October from 16.9% in September, despite a key rate cut in October that lowered the benchmark from 12.75% to 12%.
Cooperative Bank, I&M, and KCB raised their lending rates in October, while Stanbic, NCBA, Absa, and Equity lowered theirs. Diamond Trust Bank kept its rates unchanged.
Steady benchmark inflation
The MPC lowered rates as overall inflation was steady at 2.8% in November, well below the mid-point of the 5±2.5% target range.
Food inflation increased slightly to 4.5%, driven by higher cooking oil prices, while fuel inflation stayed negative at -1.6%, supported by lower electricity and pump prices.
Non-food and non-fuel inflation increased to 3.2% in November from 3.3% in October.
Globally, central banks are cutting rates amid slowing growth, and Kenya’s economy showed signs of weakness in early 2024, the MPC said. These factors, the MPC added, created room for monetary easing to stimulate growth while maintaining currency stability.
“Therefore, the Committee decided to lower the Central Bank Rate (CBR) from 12.00% to 11.25%,” the MPC said.
