By Nicholas Nduati
The Central bank has lowered the base lending rate by 50 basis points to 10 percent.
This means banks are now required to further reduce interest rates on loans to a maximum of 14 percent and pay 7 percent interest on deposits.
The central bank says the latest decision was informed by expectations on inflation to reduce in the short term.
The move follows the coming into force of the Banking Amendment Act that requires banks to peg their interest rates on the central bank rate.
Loans are charged at a maximum of 4 percent above the central bank rate while deposits attract at least 70 percent of the benchmark interest rate.
This means effective today, borrowers will be charged a maximum of 14 percent interest rate on loans. This comes a week after the coming into force of the Banking Amendment Act that priced loans at a maximum of 14.5 percent.
Central bank governor Dr. Patrick Njoroge who chairs the Monetary Policy Committee says inflationary pressures were moderate and that inflation is expected to decline in the short term.
He says the central bank is concerned about the persistent slowdown in private sector credit growth which has been persistent since July, posing a risk to economic growth.
Dr. Njoroge says the central bank is closely monitoring the impact of the new banking law on the monetary policy and the overall economy.
He says the CBK will use instruments at its disposal to sustainably reduce the cost of credit as well as maintain overall price and financial sector stability.