Finance Minister Njeru Githae has asked banks to lower their rates faster whenever the Central Bank of Kenya lowers the Key lending rate (Central Bank Rate). The minister has raised concerned over slow reaction by commercial banks to the previous Central Bank Rate cuts in the year, taking over two months to effect rates after CBK lowered the CBR.

In July, CBK reduced the CBR for the first time since it peaked at 18% and the first banks effected the reduction in mid August. After the second reduction in September, most banks cut their rates effective beginning of October with some effecting their new rates as late as 1st of November. Despite the rate falling to 13% in September, the average base lending rate was still above the 20% mark with the lowest standing at 18.5% and the highest base rate at 22.5% in October.

[Read: Bank base lending rates in September]

During the MPC meeting in September, Central Bank Governor Njuguna Ndung’u expressed concerns that commercial banks were not transferring the overall effect of low base rates to borrowers.

“The Committee noted that interest rate spreads remained high suggesting that these cost reductions had yet to be fully transferred to bank customers and the economy at large through declining cost of credit,” Ndung’u noted.

With the low base lending rate, commercial banks are expected to lower their rates to give borrowers affordable loans. Interest rates on loans sky rocketed to an average of 25% in October 2011 up from an average of 15% a year earlier making borrowers shun taking new loans.

Banks have started lowering their rates since the MPC resolved to cut the CBR to 11% from 13%. Citibank, has announced that it will reduce its base lending rate by 4 percentage points to 15% down from 19% effective 1st December 2012. It is the first bank to make the announcement since the MPC cut the rate.

[Read: Interest spread too high in Kenya]