Kenyans ought to brace for a hike in loan interest rates amid a push by key economic and development partners such as the International Monetary Fund (IMF).
The developments were aligned with a sharp increase in the cost of lending between banks, where the inter-bank rate shot up to the highest levels since October 4, 2021, when it stood at 6.69 per cent.
On December 23, 2022, the rate shot up to 6.69 per cent before easing to 6.42 per cent on December 28, 2022, this being the highest in more than a year.
The Interbank rate is the rate of interest charged on short-term loans between banks. Banks borrow and lend money in the interbank lending market to manage liquidity and satisfy regulations such as reserve requirements.
The freshly rising inter-bank rate is also closing in on the Central Bank Rate (CBR), which now only trails by 2.33 percentage points, having been set at 8.75 per cent on November 23, 2022, in the March Monetary Policy Committee (MPC) meeting.
This could hit borrowers as more banks adjusted their lending rates following the November 2022 raise.
Lenders already notified their customers of the higher interest rates that will take effect on January 6, 2023.
Some banks raised the base lending rate for their Kenya shilling-denominated loans to 11 per cent from 10 per cent and their dollar-denominated loans to 10 per cent from 9 per cent.
Customers from various banks have been receiving messages indicating the new eventuality.
“Dear customer, this is to notify you of a change in our shilling and US dollar base lending rates from 10 per cent to 11 per cent per annum and 9 per cent to 10 per cent per annum, respectively effective January 6, 2023," one of the messages read.
CBR may rise further during the next MPC meeting scheduled for January 30, 2023, amid a push by key economic and development partners such as the International Monetary Fund (IMF) for more raises of the rate to tame inflationary pressure.
MPC is CBK’s top decision-making organ on fiscal policy. The IMF wants the CBR raised further to curb inflation and help deal with the effects of foreign currency shocks.
The decision was attributed to sustained inflation amid continued global risks that could unleash further negative impacts on the local economy.
This move by the CBK received backing from the IMF, with the agency welcoming the approach.
“The Central Bank of Kenya’s (CBK) monetary policy stance is welcome. Further tightening would limit second-round effects and keep inflationary expectations well-anchored while supporting external adjustment” the IMF commented.