CBK cuts base lending rate to 7% as banks release Ksh.15.3B in Covid-19 support loans

The Central Bank of Kenya (CBK) has cut the base lending rate to 7 percent from 7.25 percent in a bid to support further liquidity in the wake of a weakened economic outlook.

According to the reserve bank, the Monetary Policy Committee (MPC) meeting held on Wednesday argued for an accommodative monetary policy stance even as recent policy interventions’ continue to filter through.

“The Committee noted that the policy measures adopted in March were having the intended effect on the economy and are still being submitted. However in light of the continuing adverse economic outlook, the MPC decided to augment its accommodative monetary stance,” noted the CBK in a statement issued on Wednesday.

Further, the CBK disclosed that banks had released 43.5 percent of funds or an equivalent Ksh.15.3 billion from the Ksh.35.2 billion released at the end of March from the lowering of the Cash Reserve Ratio (CRR) from 5.25 percent from 4.25 percent.

The Covid-19 support loans were released on the demonstration of commercial banks willingness to support borrowers that were distressed as a result of the Covid-19 pandemic.

“43.5 percent of the funds released to the banking system have been utilized so far, with the tourism, real estate, trade and agricultural sectors being the main beneficiaries,” added the CBK.

Moreover, a combined Ksh.81.7 billion have been restructured with the biggest sector beneficiary being tourism, restaurants and hotels with a lion share of 31 percent.

Other beneficiaries include real estate at 17.2 percent, construction at 17 percent and trade at 12.4 percent.

The release of the funds came as the banking industry remained agile as asset quality improved with the sector’s gross non-performing loans thinning to 12.5 percent at the end of March from 12.7 percent in February.

Private sector credit meanwhile improved to a high of 8.9 percent in twelve months to March 2020 with growth being more profound in the manufacturing, construction and transport sector.

The cuts to base lending comes as government and development partners continue to warn of an impending economic fallout from the prevailing global health emergency.

On Tuesday, the National Treasury cut its 2020 growth projection to a new 1.8 percent-2.5 percent range as it sees major disruptions to economic activity.

“There is a general slack in economic activity particularly in the service sector with expectations on job losses and earnings, Treasury Cabinet Secretary Ukur Yatani said.

On Wednesday, the World Bank Group followed up the negative outlook, predicting the Kenyan economy will fall into its first recession in 28 years at a negative one percent growth rate in a worst case scenario from a hit from the pandemic.

CBK’s MPC survey conducted earlier in the month reflected on the slack with hotel bookings in the second quarter for instance indicated as virtually cancelled.

However, businesses maintained optimism over government’s containment measures.

“All respondents expressed confidence in the measures rolled out by government to mitigate the impact of Covid-19,” the CBK said.