The Central Bank of Kenya’s Monetary Policy Committee has revised downwards the benchmark lending rate by 50 basis points to 8.50 percent in move expected to bolster suppressed growth.
The committee noted in its sitting noted that inflation rate stood at 4.9 percent in October compared to 3.8 percent in September, mainly reflecting temporary effects of increases in the prices of maize grain and sifted flour.
Thursday meeting by the Monetary Policy Committee is the first since repeal of interest rate cap.
To this end the committee has cut the Central Bank Rates to cushion against the flattering economy.
The committee says the economy is operating below its potential level though optimistic that inflation rates will remain well anchored within the target range.
However overall inflation is expected to remain within the target range in the near term due to lower food prices following improved weather conditions, and lower electricity prices.
Private sector credit grew by 6.6 percent in the 12 months to October, compared to 7.0 percent in September.
The committee welcomed the repeal of the interest cap predicting a credit growth in the private sector due to innovative credit products targeting the sector.
This comes after Family Bank became the latest bank yet to say it will not revise their lending rates despite the rate cap abolition.
Chairman Wilfred Kiboro says the removal of the interest rate cap will only provide a better room for negations between banks and borrowers.
Kiboro expects minimal movement in the financial sector as a majority of lenders will not review their rates.