The Central Bank of Kenya (CBK) advisory committee has retained its base lending rate at 10 per cent, offering relief to borrowers.
The bank’s Monetary Policy Committee (MPC) said it held the rate steady since the shilling has remained stable against the dollar with the country holding sufficient foreign exchange reserves.
Besides, food supplies were likely to improve and lower pressure on inflation the team argued.
“The MPC therefore decided to retain the Central Bank Rate (CBR) at 10.0 per cent in order to continue to anchor inflation expectations,” the MPC chairman Patrick Njoroge said in a statement.
The MPC also maintained the benchmark rate at 10 per cent in its July review. This means borrowers will continue paying for loans at a maximum interest rate of 14 per cent, in line with the State-backed controls that cap the rate at four per cent above the policy rate.
The banking sector regulator said that the shilling has been supported by hard currency inflows from Kenyans working abroad, tea and horticulture receipts alongside a strong recovery in tourism.
The retention of the rate came amid higher inflation of 8.04 per cent last month from 7.47 per cent in July, above the government’s preferred band of 2.5 per cent to seven per cent.
The bank noted that the cost of living measure was driven by rising food prices, not cash supply, meaning the economy is not at risk of demand-driven inflation.
“A normalization of supply, the expected short rains, and supportive measures taken by the Government are expected to further lower food prices in the near term,” the MPC said.
Today’s meeting was held at a time when the CBK has signalled intention to repeal the year-old law capping interest rates due to the negative effect it has had on the economy.
Banks have blamed the rate caps for squeezing credit growth.