Citibank Kenya has announced that it will be cutting its base lending rate following  Central Bank of Kenya's reduction of its key rate by 200 basis points to 11% from 13% a week ago. Citibank, through press announcements has said it will reduce it base lending rate by 4 percentage points to 15% down from 19% effective 1st December 2012. It is the first bank to do so after the MPC cut the rate.

The Monetary Policy Committee noted that a tighter monetary policy stance has continued to deliver the desired results of a decline in inflation and exchange rate stability. The announcement by CBK is welcome news for borrowers as banks are expected to lower interest rates they charge on loans since commercial banks peg their lending rates on the CBR.

The Committee observed that overall inflation continued to decline in October 2012 and was within the 5% target set by the Government for the fiscal year 2012/13.  The overall month-on-month inflation declined from 6.09% in August 2012 to 5.32% in September 2012 and further to 4.14% in October 2012.

According to MPC, the decline in inflation was reflected across all the measures of inflation as well as all income groups. Declining food prices – despite increases in fuel prices – coupled with easing demand pressures in the economy continued to support the decline in inflation.

After the initial rate cut by CBK from 18% to 16% then later to 13%, commercial banks had reluctantly lowered their rates, mostly by margins lower than the CBR drop. Kenya Bankers Association Chief Executive Habil Olaka last month said banks should transfer the benefits of cheaper credit from CBK  to the customers.