The Central Bank of Kenya (CBK) Governor has cautioned of dire economic consequences should commercial banks continue offering loans at high interest rates.
Speaking on Friday, December 6, during a press briefing after CBK’s Monetary Policy Committee (MPC) meeting, Governor Kamau revealed that banks’ failure to lower their lending rates could stagnate economic performance.
The governor explained that he recently held a meeting with bankers over the matter, however, despite reaching a conclusive agreement, there is still no change in the interest rates charged on loans acquired by Kenyans.
“Banks have been sluggish in lowering their lending rates. Two weeks ago I had a meeting with bankers, and I do believe they now understand the reason why they need to start lowering their rates progressively,” Kamau said.
“If they continue on this path, it is a no-win for anyone, it is a no-win for the banks, and the economy with not being able to perform. On the other hand, if they decide to lower the rates, the economy will benefit from more credit and become more active,” he added.
The governor went ahead to dismiss allegations that CBK's directive to commercial banks was politically instigated. He clarified that the move was informed by the regulator’s decision to cut the base lending rates.
Kamau further took a swipe at the banks for hurriedly raising interest rates in February this year when the base lending rates rose but failed to act in the same manner recently after the regulator lowered the rates.
“All we are asking for is for the banks to be fair and act in the same way they did when the policy rates were increasing and the Treasury bill rates were increasing. They should equally reduce their lending rates as soon as possible,” the governor commented.
On Thursday, December 5, the Central Bank lowered its base lending rate for the third successive month by 75 basis points from 12 per cent in October to 11.25 per cent in December.
The CBK governor attributed the decision to stable inflation which currently stands at 2.8 per cent. According to Kamau, stability in inflation was prompted by a drop in the prices of goods and services.
"The overall inflation is expected to be below mid-point supported by lower food inflation owing to improved supply from ongoing harvest and favourable weather conditions," the governor revealed.
CBK further noted that the Kenya shilling's stability against the United States dollar also played a significant role in lowering the base lending rates. Kamau said the local unit had stabilised by 21 per cent since February this year.
