The Central Bank of Kenya (CBK) Monetary Policy Committee has announced that Kenyans can now borrow bank loans at a lower interest rate.
The move will see banks lending rates drop to 13 percent after the CBK revision.
Following the directive, Kenyans will now acquire loans at an interest rate of 13 percent from 13.5 percent in line with the interest rate capping rule that limits lending rates to 4 percentage points above the CBR.
CBK's Governor Patrick Njoroge's announcement comes four months after the Monetary Policy Committee (MPC) changed its rates from 10 percent to 9.5 percent.
[caption caption="Central Bank of Kenya (CBK) Dr Patrick Ngugi Njoroge"][/caption]
"The MPC noted that inflation expectations were well anchored within the target range and that economic growth prospects were improving. Furthermore, economic output was below its potential level, while noting the risk of perverse outcomes, the Committee decided to lower the Central Bank Rate," CBK Governor stated.
Additionally, Mr Njoroge noted that Kenya's private sector credit growth is expected to remain below 5 percent in 2018 even as it stood at just 2.4 percent in December 2017 in accordance to Rating Agency Moodys.
According to the institution, despite Kenya’s economic rebound that will help banks to expand loan growth over the next 12-18 months, it currently remains constrained by the government cap on lending rates.
In June, Treasury Cabinet Secretary Henry Rotich revealed that the interest capping had a negative impact on the economy.
The government has however indicated plans to review the interest rate capping that was administered in 2016.
"A preliminary assessment of the impact of the lowering of the CBR in March 2018 showed that the change under the interest rate capping regime had a smaller and slower impact on key macroeconomic variables such as credit and economic growth," the CBK Governor reiterated.