Central Bank of Kenya‘s Monetary Policy Committee is set to meet this week in discussions that could see the fate of interest rates determined. The Central Bank Rate (CBR) however is bound to be maintained at 18% thwarting any hopes of lower lending rates by banks. Commercial Banks peg their lending rates on the CBR, which is the rate at which CBK lends to the banks.
The overall inflation rate for the month of May reduced from 12.22% to 10.05% according to figures released by The Kenya National Bureau of Statistics. The committee resolved to maintain the Central Bank Rate at 18% in May to ‘cushion the vulnerable shilling against external forces’ and also achieve the governments short term target of taking inflation to the single digits. The government projects that infaltion rates could hit even lower than 9% by the end of the year.
Parliament failed to pass an amendment in March that had proposed to cap interest rates on loans at at most 4 per-centage points more than the 18% Central Bank Rate, which would cap rates at 22% and put a base on deposit interests at 12.6%. Borrowers have been taking loans at an average rate of 24%, a figure 10 percentage points up from what the lending rates averaged at in 2010.