The last two weeks have seen most commercial banks in the country lower their base lending rates by different margins. This move came after the Central Bank of Kenya's Monetary Policy Committee (MPC) lowered its base lending rate (CBR) by 3.5 percentage points to 13% from 16.5% in July. This is a good sign for borrowers as the market's response has shown signs for cheaper loans with rates expected to be lower than 18% by the end of the year.

CBK attributed the need to lower the rate to the falling trends in inflation. The overall inflation declined from 10.05% in June to 7.74% in July and further to 6.09% in August. The decline in the overall inflation,CBK says, was supported by a continued reduction in food and fuel prices as well as easing demand pressures in the economy.

Here's a table of rate cuts that commercial banks have posted.

[caption id="attachment_20381" align="aligncenter" width="643"] Banks have cut interest rates following the MPCs move to lower base lending rates by 350 base points to 13%. (Image: Pesatalk)[/caption]

During the MPC meeting, 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.