CBK committee meets to review base lending rate

By Ruth Mutegi

The Monetary Policy Committee has retained the base lending rate at 8.5 percent since May last year

The Central Bank Monetary Policy Committee is expected to meet Tuesday to review the base lending rate against a background of a stable shilling and inflation that has been slightly rising over the last three months.

The Monetary Policy Committee has retained the base lending rate at 8.5 percent since May last year.

Kenya’s month on month inflation has been rising gradually but has still remained within the government’s 7.5 percent target.

Although the shilling has been struggling to gain ground against the dollar for the last two months, it has remarkably remained stable at the 86 shilling mark boosted by the recent successful floating of the debut Kenya Eurobond last month.

A volatile exchange rate in the recent past and an inflation which hit a high of 19% in November 2011 saw the MPC retain high interest rates between 2012 and late 2013.

However, with the current stable macroeconomic environment, interest rates have had a positive turn in the banking sector and they are expected to even go further as the Central Bank also officially introduces the Kenya Bank Reference Rate, also known as KBRR, which will provide a standard rate for all banks in the pricing of loans.

This means that banks will not raise their interest rates without considering the KBRR rate issued by the Central Bank as has been the norm; bringing hope that maybe there could be a reduction in interest rates.

This is because each borrower would be evaluated based on his or her risk and be given an interest rate based on it.

The only set back to this hope would perhaps be that even with the KBRR, banks will still add their premium on to the figure, bringing the rate either high or at a rate that would attract more borrowers.