Lending rates likely to remain static this year

An economic analyst has ruled out on any possible rise in the Central Bank Rate (CBR) after next week’s Monetary Policy Committee meeting. Expectations from borrowers who feel that banks will reduce their lending rates in line with the expected drop in the CBR are high.

Independent financial analyst Aly Khan Satchu says that the CBK has a possibility and the ability to reduce these rates to as low as a single digit from the current 11 percent due to the constructive economy especially with the continued drop in inflation.

The inflation rate in December reduced to 3.20 percent down from 3.25 in November.

According to him, the CBR is 780 basis points above the Inflation Rate and this gives the MPC room to sail through. He further states an expected minimum of 100 basis points.

Some measures being considered by the financial regulator consider while making changes in the CBR, are, the inflation rate, the exchange rate, liquidity, and a rise in Gross Domestic Product, all of which look positive to him.

He nonetheless argues that the MPC maybe be a bit cautious to lower the CBR and instead settle on keeping it at percent.

"The MPC might not care to pull the trigger so early in the year,” Satchu added.

Furthermore, he has the opinion that banks still have numerous excuses as not lower their lending rates despite the continued drop in CBR.

"Lending rates have remained stubbornly high. The banks followed the Central Bank on the way up and with alacrity but have been very slow to follow the Central Bank downwards. And these high lending rates have proven a steep toll charge on the economy as evidenced by the weak GDP outcome notwithstanding a little bounce in quarter three,” he said.

Kenya Bankers Association CEO Habil Olaka on the other hand feels that the CBK may decide to maintain its rate and first watch the economical risks especially associated with the coming general elections.

He said maintaining the rate would also be a signal of economic stability.

“You know the committee does its review after every two months so it may decide to see how the campaigns go. I also urge the banks to not only wait for the CBR rate changes, but focus on other measures to enable them lower the lending rates,” Olaka said.