By Nicholus Nduati
The cost of credit is expected to marginally reduce in coming weeks following the latest decision by the central bank to reduce the benchmark lending rate.
Policymakers at the Central bank have lowered the base lending by 100 basis points to 10.5 percent saying this will help anchor inflationary expectations.
The Central Bank had kept the base lending rate at 11.5 percent since July last year but with inflation falling to 5.3 percent, the lowest level since 2013, the CBK eased the monetary policy.
Analysts had expected the Monetary Policy Committee to lower the base lending rate by between 50 to 100 basis points given the favorable macro-environment and positive economic factors since the beginning of the year.
Anchored by a stable shilling and a low inflation level currently at 5.3 percent, the lowest level since 2013, lowering of the key lending rate is expected to go a long way into supporting private sector lending to spur economic growth.
Central Bank Governor Dr. Patrick Njoroge says CBK will monitor developments in the economy, and use instruments at its disposal to maintain overall price and financial sector stability.
“Overall inflation is expected to decline and remain within the Government target range in the short-term,” the governor said in a statement.
He added “The Committee noted that overall inflation is expected to decline and remain within the Government target range in the short-term. Therefore, it concluded that there was policy space for an easing of monetary policy while continuing to anchor inflation expectations”.
Foreign exchange reserves at the central bank have risen to 7.79 billion dollars equivalent to 5 months of import cover up from 4.7 months two months ago.
In addition, the foreign exchange market has been supported by a narrowing current account deficit with improved earnings from tea and horticulture exports, strong Diaspora remittances and a lower oil import bill.
Dr. Njoroge says the banking sector has begun to stabilize following the successful and quick reopening of Chase Bank that has enhanced confidence in the sector.
He says credit and liquidity risks remain concerns in the banking sector.