CBK retains benchmark lending rate at 7% for seventh time

The Central Bank of Kenya (CBK) has retained its benchmark lending rate unchanged at seven per cent for the seventh straight time.

The reserve bank which held its bi-monthly Monetary Policy Committee (MPC) meeting on Monday has noted measures taken previously have had their intended effect in covering the economy amidst disruptions occasioned by the COVID-19 pandemic.

According to the CBK, the economy is tipped to rebound strongly in 2021 but terms the evolving COVID-19 crisis as an Achilles heel to economic recovery.

“Global economic prospects have improved in recent months, largely supported by the development of vaccines and strong policy measures. Nevertheless, the outlook remains highly uncertain, due to concerns on the pace of roll-out of vaccination programs in some countries, emergence of new variants of the virus, and the reintroduction of containment measures in some economies,” the CBK stated.

Further, the CBK says the economy recovered in the fourth of 2020 and in the first quarter of 2021 which closes out on Wednesday.

“The economy is expected to rebound strongly in 2021, supported by recovery in the services sector particularly education and the wholesale and retail trade. This recovery will be anchored on the success of the containment measures and the vaccination program, including the measures announced on March 26,” the CBK added.

The MPC held four surveys during the month from which it established optimism for growth this year even as respondents cited uncertainties over the pandemic.

For instance, while 98 per cent of surveyed hotels said they were open, the average occupancy rate stood at a mere 27 per cent in March.

Last year, the CBK cut the Central Bank Rate (CBR) by 125 basis points alongside trimming the cash reserve ratio (CRR) to 4.25 per cent with the aim of supporting funding to the wider economy.

Since then, private sector credit growth to a high of 9.7 per cent at the end of February indicating improved credit access to the economy.

Nevertheless, doubts have been creeping in to the success of part of measures taken to ensure a soft landing for business and households including the fiscal measures by the National Treasury.

“The growth in private sector credit is hardly impressive against a 125 basis points cut in the benchmark rate in this pandemic cycle with banks maintaining a cautious stance towards the risky borrowing segment. From our estimates, banks’ holdings of government securities increased by Ksh.198.9 billion, cementing this cautiousness in an uncertain environment,”said analysts at Genghis Capital.

CBK’s MPC is expected to re-convene in May but remains ready to meet before then when necessary.

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