NAIROBI: The Central Bank yesterday left the minimum rate at which it lends to commercial banks unchanged, saying the increase by 300 basis points to 11.5 per cent over the last two months needed more time to achieve the desired results.
This offers a slight relief as most market analysts had predicted the Monetary Policy Committee would review the rate upwards to at least 12 per cent CBK governor Patrick Njoroge who chairs the committee said earlier rate increases made on June 9 and July 7 were “yet to be fully transmitted to the economy”.
The bank’s base lending rate, Central Bank Rate, was been increased to 11.5 per cent from 8.5 per cent following the two meetings, while the Kenya Banks Reference Rate, the industry reference rate in pricing loans rose by 133 basis points to 9.87 per cent.
The regulator followed the KBBR raise with a directive to banks not lend or borrow more than 10 per cent of their foreign exchange holding within a day.
The measure that has reduced cash supply, was taken to further help stabilise the shilling against the dollar, relatively stabilising the currency that was hovering towards the 103 levels.
Most of the lenders have already issued a one-month notice to their customers, as a required by the law, informing them of an increase in interest rates on their existing loans following the adjutment by the CBK.
“The Committee concluded that the measures taken in the previous meetings were yet to be fully transmitted to the economy. In particular, the impact of the increase in the Kenya Banks’ Reference Rat takes effect from August 2015,” Njoroge said in a press statement yesterday evening. “The MPC therefore decided to retain the CBR at 11.50 percent in order to anchor inflation expectations.”
The bank, he said, will continue monitoring and ironing out any volatility tendencies on the shilling using “the instruments at its disposal to maintain overall price stability”.
Inflation in July unexpected fell 6.67 per cent from 7.08 per cent the previous month, while the shilling has remained relatively stable oscillating between 101 and 102. Some banks however said there was a “disconnect” between the rise in the CBR and KBBR.
“The two should go in tandem so that we are really able take cue from the Central Bank Rate to respond,” Equity Bank chief executive James Mwangi said on Tuesday. “We have been reluctant to act (increase ineterest rates) because we could see there is still a disconnect.”
“Having resisted the more blunt instrument of a cash reserve ratio hike thus far, the CBK might favour a tactical change,” Standard Chartered Bank’s head of research for Africa Razia Khan had said [prior to the meeting.
