CBK Retains Benchmark Lending Rate at 7 Percent

The Central Bank of Kenya (CBK) has retained the benchmark lending rate at seven percent, for the second time.

The reserve bank’s Monetary Policy Committee (MPC) said in a statement that policy measures adopted since March due to Covid-19 were having the intended effect on the economy, hence the retention.

“The Committee noted that the package of policy measures adopted since March were having the intended effect on the economy, and will be augmented by the announced fiscal measures. The MPC concluded that the current accommodative monetary policy stance remains appropriate,” the committee said in a statement.

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Most recent leading indicators for the Kenyan economy point to strong growth in the first quarter of 2020. The indicators for the second quarter suggest that the impact of Covid-19 on the economy was most pronounced in April, with evidence of recovery in May supported by improved agricultural output and exports, although the services sector remains subdued.

“The measures by the Government to cushion businesses and households continue to moderate the impact of the pandemic,” added the committee.

Overall inflation is expected to remain within the target range in the near term. This is supported by improving food supply due to favourable weather conditions, lower international oil prices, the impact of the reduction of VAT and muted demand pressures.

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In line with the emergency measures announced by CBK on March 18 to provide relief to borrowers, the repayment period of personal/household loans amounting to Ksh199.1 billion (25 percent of the gross loans to this sector), had been extended by the end of May.

For other sectors, a total of Ksh480.6 billion had been restructured mainly to trade (23.7 percent), real estate (20.6 percent), tourism (12.5 percent), transport and communication (11.2 percent) and manufacturing (10.6 percent).

Total loans that have been restructured are worth Ksh679.6 billion and accounted for 23.4 percent of the total banking sector loan book of Ksh2.9 trillion.

“These measures have provided the intended relief to borrowers. • Additionally, the lowering of the Cash Reserve Ratio (CRR) in March released Ksh35.2 billion to the banking sector, and continues to be transmitted through the economy. To date, Ksh30.8 billion of the funds (87.6 percent) has been used to support lending, especially to the tourism, transport and communication, real estate, trade and manufacturing sectors,” said CBK.

According to CBK, the banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 13.0 percent in May, compared to 13.1 percent in April.

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