The Kenya Bankers Association (KBA) is advocating for the Central Bank of Kenya (CBK) to retain the existing 8.75% base lending rate in the forthcoming Monetary Policy Committee (MPC) meeting scheduled for February 6, 2024.
The lenders’ group attributes this recommendation to significant macroeconomic changes, such as a reduction in inflation, rising market interest rates, a decrease in banking sector asset quality, and a depreciation of the Kenyan Shilling.
“Easing inflationary pressure call for a hold on the CBR to allow its recent adjustments to be fully transmitted through the market and protect the fragile economic activity,” KBA said in a statement to the media
The sector’s advocacy organization noted that a decline in inflationary pressures indicated a more stable economy, a condition that could be reinforced by keeping the existing interest rate unchanged. The inflation rate decreased from 7.9% in June 2023 to 6.6% in December 2023 and 6.9% in January 2024.
Despite a positive economic performance in the third quarter of 2023, the industry group foresees a deceleration in economic growth due to a mix of domestic and global economic challenges. This situation further emphasizes the necessity for maintaining stability in the base lending rate.
As per the Kenya Bankers Association (KBA), the rise in market interest rates was a response to the policy signal conveyed in the December 2023 Monetary Policy Committee (MPC) meeting, where the Central Bank Rate (CBR) saw a 200 basis points increase.
Maintaining the stability of the base lending rate, according to KBA, is crucial to ensuring that banks maintain access to cost-effective capital, thereby supporting economic activity
KBA is also concerned with the sector’s declining asset quality, that despite a robust credit growth, the industry’s Non-Performing Loan (NPL) ratio to gross loans had risen to 15.3 per cent in October 2023, up from 14.7 per cent in July 2023, noting that maintaining the current lending rate will help prevent further defaults and thereby strengthen the banking sector.
“We argue for a maintenance of the current stance of monetary policy in keeping the CBR unchanged; allowing the 200 basis points upward adjustment effected in December 2023 to be fully transmitted in the market and protect the fragile economic activity,” KBA said.
