KCB Bank Group has announced that it will be lowering its base rates effective 1st October 2012. The bank will lower its base lending rates to 19% down from 22%. This comes a week after the Central Bank of Kenya lowered its base lending rate by 3.5 percentage points to 13% down from 16.5% prompting commercial banks who borrow from the bank to lower their interest rates. In June the lender lowered their rate by 3 percentage points beginning bringing average lending rates to 22% down from 25%.

At the same time, the group’s mortgage division S&L will also be dropping its rates on mortgage loans to 18% down from 19% effective the same date. The bank has also announced that its KCB Mortgage Advantage customers will now service their mortgages at 16.5% down from 17.5%.

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.

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.