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CBK Retains Benchmark Lending Rates At 7 Percent

Central Bank of Kenya (CBK) Governor Patrick Njoroge
Central Bank of Kenya (CBK) Governor Patrick Njoroge. [Photo/Courtesy]

Central Bank of Kenya’s (CBK) Monetary Policy Committee (MPC) has retained the benchmark lending rates at 7 percent for the third time in a row.

In a statement, CBK termed the current monetary stance as “accommodative”, in relation to the prevailing economic conditions caused by Covid-19 pandemic.

“The MPC concluded that the current accommodative monetary policy stance remains appropriate, and therefore decided to retain the Central Bank Rate (CBR) at 7.00 percent,” the statement read in part.

CBK said that the economic outlook for 2020 remains highly uncertain, reflecting the unpredictability of the severity and persistence of the COVID-19 pandemic.

Read: New Proposed Changes To Allow CBK Regulate Mobile Loan Rates

“After a sharp contraction in the first half of 2020, global economic activity is expected to recover gradually in the second half, mainly reflecting the impact of the lifting of COVID-19 containment measures and the effects of the fiscal and monetary policy measures put in place,” said CBK.

CBK further revealed that month-on-month overall inflation declined to 4.6 percent in June from 5.3 percent in May 2020, and is expected to remain within the target range in the near term. This is supported by lower food prices, the impact of the reduction of VAT and muted demand pressures, according to CBK.

It was also noted that 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 13.1 percent in June, compared to 13.0 percent in May. NPL increases were noted in the manufacturing, trade and personal sectors, due to a subdued business environment.

Total loans amounting to Ksh844.4 billion have been restructured (29 percent of the total banking sector loan book of Ksh2.9 trillion) by the end of June, in line with the emergency measures announced by CBK on March 18. Of this, personal/household loans amounting to Ksh240 billion (30 percent of the gross loans to this sector) have had their repayment period extended.

For other sectors, a total of Ksh604.4 billion had been restructured mainly to trade (22.9 percent), real estate (19.5 percent), transport and communication (16.3 percent) and manufacturing (14.0 percent).

Read: Metropol CRB On The Spot For Blacklisting Borrowers Against CBK Directive

“Of the Ksh35.2 billion that was released by the lowering of the Cash Reserve Ratio (CRR) in March, Ksh31.4 billion (89.1 percent) has been used to support lending, especially to the tourism, transport and communication, real estate, trade and manufacturing sectors,” added the statement.

In the 12 months to June 2020, private sector credit grew by 7.6 percent, with the strongest growth observed in manufacturing (12.3 percent), trade (8.4 percent), transport and communications (14.9 percent), and consumer durables (15.2 percent).

Despite the impact of the pandemic, exports of goods have rebounded, growing by 1.7 percent in the first half of 2020 compared to a similar period in 2019. Receipts from tea exports over this period increased by 18.4 percent with increased production.

Remittances remained strong in June, rising to USD288.5 million from USD258.2 million in May. However, services exports declined by 20 percent in the first half of 2020 reflecting the weakness in tourism and air transportation.

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Written by Francis Muli

Follow me on Twitter @francismuli_. Email

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