CBK signals lower interest rates with KBRR cut

The Central Bank of Kenya’s monetary policy committee (MPC) has lowered the Kenya banks reference rate (KBRR) signalling a round of interest rate cuts.

At the rate-setting meeting held on Monday, the MPC lowered the KBRR from 9.87 percent to 8.9 percent in a move expected to pressure banks to lower interest rates for borrowers.

The average lending rate in the country has remained high at 19 percent.

“In line with the framework, the CBK has revised the KBRR to 8.90 percent from 9.87 percent, effective from July 25, 2016,”CBK Governor Dr Patrick Njoroge said in a statement.

The governor has in the past however said he did not believe the KBRR played a major role in lowering interest rates. The central bank has been toying with the idea of introducing an annual percentage rate pricing tool to replace KBRR by allowing customers to compare lending rates offered by commercial banks on a common computation tool.

KBRR is pegged on the Central Bank rate and average 91 day Treasury bill.

This comes even after moves to lower the benchmark-lending rate at the last meeting to 10.5 percent failed to yield the desired effect.

The move by the rate setting committee comes at a time there has been private sector credit slow down on grounds of high interest rates.

At the same time, the MPC held the central bank rate at 10.5 percent in anticipation of inflationary pressure following the hike in fuel prices.

“The Committee concluded that although demand pressures on inflation remain moderate, the effects of the recent increase in fuel tax were expected to exert temporary upward pressure on consumer prices,” Dr Njoroge said.