Central Bank of Kenya lowers lending rates to 11.25%

The Central Bank of Kenya (CBK) has reduced the benchmark lending rate by a further 75 basis points to 11.25 percent, marking its third rate cut this year.

Speaking during CBK's final Monetary Policy Committee meeting of the year, CBK Governor Dr. Kamau Thugge urged commercial banks to lower their lending rates following this adjustment.

He said the decision was prompted by cooling inflation, a relatively stable currency, and a slowed economy for the first six months of the year.

However, the regulator has raised concerns that, despite successive rate cuts, commercial banks in the country remain reluctant to extend the benefit to borrowers.

"Certainly, the banks have been sluggish in lowering their interest rates and as you know I have had meetings with the banks. The last two weeks we’ve had meetings with all the CEOs of banks, and I do believe that they now understand they need to start aggressively lowering interest rates to consumers," said Dr. Thugge.

The call comes just weeks after a meeting between the CBK and bank CEOs aimed at addressing sustained high lending rates.

Credit growth to Kenya’s private sector has been under pressure, showing signs of stagnation.

Banks across the country had initially argued against lowering interest rates, saying that rates on deposits had gone up, meaning they were unable to cut lending rates.

"Now the situation has reversed, the 91-day Treasury bill that was around 16 per cent only a few days ago, now it’s at 10.45 percent,” added the CBK boss.

“And therefore now even as some deposits begin to mature they should now be able to reduce the cost of funding, and they should translate that cost of funding, these savings to now go to reducing their lending rates so that we can now start giving more credit to the private sector, less to the government so that we can really stimulate economic activity and start generating some jobs."

The Monetary Policy Committee will sit again come February next year.