The Kenya Bankers Association has called for a further reduction of the base lending rate by the Central Bank of Kenya ahead of next week's Monetary Policy Committee (MPC) meeting.
In a research note published on Thursday, August 7, the bankers observed that inflation remained stable, the exchange rate was steady, and global interest rates were easing.
With weak credit growth and slowing business activity, bankers emphasised an urgent need to cut the rate to support lending and stimulate economic recovery.
According to KBA, the country's inflation expectations remain well anchored within the target range, rising marginally to 4.1 per cent in July from 3.8 per cent in June.
Similarly, the association highlighted that the effects posed by the changes in global fuel prices due to the recent war in the Middle East remained low.
The bankers also argued that there were minimal threats to exchange rate stability, with the external sector performance depicting resilience in Kenya's forex reserves.
"Given these developments, and given a favourable external interest rate differential, we view that there is scope to cut the Central Bank Rate (CBR) to support credit growth and anchor economic growth," KBA noted.
"This will complement the structured efforts to resolve the long-standing government pending bills that are expected to improve NPL ratios in the market," it added.
The proposal by the bankers comes hardly a week before CBK convenes the Monetary Policy Committee meeting, which is scheduled to take place on August 12.
The last MPC meeting held by the regulator was in June this year, during which the central bank lowered the lending rate by 25 basis points to 9.75 per cent from 10 per cent.
CBK, in its announcement, revealed that previous measures had helped to lower the rate of inflation and stabilise the exchange rate, and thus it was necessary to lower the lending rates.
However, despite lowering the base lending rate for the sixth successive time, CBK lamented the refusal by some commercial banks to lower their interest rates in line with the monetary policy adjustments.
