The Central Bank of Kenya (CBK) has announced a 75 basis point reduction in the benchmark lending rate, bringing it down to 11.25%.
This marks the third rate cut by the CBK in 2024, and it is aimed at spurring economic growth.
During the final Monetary Policy Committee (MPC) meeting of the year, CBK Governor Dr. Kamau Thugge called commercial banks to align their lending rates with the revised benchmark.
He emphasized that this move was driven by easing inflation, a relatively stable currency, and a slower-than-expected economic performance in the year's first half.
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Despite these adjustments, concerns remain that banks have been slow to pass the benefits of rate cuts to borrowers. Dr. Thugge expressed optimism following recent discussions with bank CEOs, signaling a shift in their approach to interest rate reductions.
“The banks have been hesitant in lowering their rates, but after meetings with their CEOs over the past two weeks, I am confident they understand the need to lower borrowing costs for consumers aggressively,” said Dr. Thugge.
This development follows a high-level dialogue between CBK and banking executives aimed at addressing Kenya’s persistently high lending rates. Credit growth to the private sector has shown signs of stagnation, highlighting the urgency of creating a more borrower-friendly environment.
Previously, banks justified their reluctance to lower lending rates by citing increased deposit costs. However, Dr. Thugge pointed out that conditions have improved.
“The 91-day Treasury bill rate, which was at 16% recently, has dropped to 10.45%. This shift allows banks to reduce their cost of funding. It’s time for these savings to translate into lower lending rates, facilitating more credit for the private sector and stimulating job creation and economic activity,” he added.
