Kenyans could soon begin to access cheaper loans after the Central Bank of Kenya (CBK) cut the base lending rate for the second successive month.
In its report, the Central Bank cut the rate by 75 basis points further lowering the interest rate to 12.00 per cent from the initial 12.75 in August this year. The policy move is expected to positively impact the interest rates at which Kenyans access commercial and personal loans.
The regulator attributed the decision to cut the base lending rate to the recent drop in overall inflation which currently stands at 3.6 per cent from 4.4 per cent in August 2024. The country’s inflation has progressively reduced on the back of an overall positive business environment which has seen Kenyans access goods and services at cheaper rates.
The Central Bank revealed that the food inflation declined to 5.1 per cent in September from 5.3 per cent in August, mainly reflecting lower vegetable price inflation attributed to a decline in prices of key items such as tomatoes, cabbages, onions, and potatoes.
“The MPC noted that overall inflation has declined further and is expected to remain below the midpoint of the target range in the near term, supported by stable food inflation attributed to improved supply from the ongoing harvests,” noted the Central Bank.
"There was scope for a further easing of the monetary policy stance to support economic activity while ensuring exchange rate stability. Therefore, the Committee decided to lower the Central Bank Rate (CBR) to 12.00 per cent."
CBK in its report stated that the overall inflation was expected to remain below the mid-point of the target range mainly supported by improved food supply from the ongoing harvests, a stable exchange rate and stable fuel prices.
The rate cut was also grounded on the local unit’s stability. The Kenyan Shilling has strengthened to a record high this year, gaining by about 21 per cent against major global currencies. As of Tuesday, October 8, the London Stock Exchange Group (LSEG) quoted the shilling at Ksh128.5 against the United States Dollar.
Similarly, diaspora remittances increased by 12.7 per cent to $4.6 billion in the 12 months to August 2024 compared to $4.12 billion in a similar period in 2023. Similarly, remittances were 16.4 per cent higher in the first eight months of 2024 compared to a similar period in 2023.
However, the ratio of gross Non-Performing Loans (NPLs) to gross loans stood at 16.7 per cent in August 2024 compared to 16.3 per cent in June.
According to CBK, the surge in non-performing loans was majorly witnessed in the transport and communication, personal and household, trade, real estate and manufacturing sectors.
"The MPC will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to take further action as necessary in line with its mandate," the Central Bank noted.
