Banks To Raise Interest On Loans
Banks To Raise Interest On Loans
In a move that paves the way for banks to hike interest rates on loans given to Kenyans by commercial banks, the Central Bank of Kenya (CBK) increased the base lending rate on Tuesday from 12.50 percent to 13 percent. The latest Monetary Policy Committee (MPC) meeting was held, and CBK Governor Kamau Thugge stated in a statement that the policy decision was made to moderate the rising rates of inflation.
“By addressing residual pressures on the exchange rate and putting inflation on a firm downward path towards the 5.0 per cent mid-point of the target range, the proposed action will ensure that inflationary expectations remain anchored,” the CBK said in a statement.
The MPC reported that total inflation remained stuck near the upper end of the government’s goal range, rising to 6.9% in January 2024 from 6.6% in December 2023.
Meanwhile, food inflation rose from 7.7% in December 2023 to 7.9% in January 2024, mostly due to higher costs for a select few non-vegetable goods after a decrease in supply that was partially caused by seasonal factors. In the meantime, fuel inflation increased from 13.7% in December 2023 to 14.3% in January 2024, mostly as a result of increasing energy prices.
“The risks to inflation remain elevated in the near term, reflecting the impact of the second-round effects of the rise in fuel inflation, and pass-through effects of exchange rate depreciation,” CBK stated.
Nonetheless, Thugge disclosed that CBK’s foreign exchange reserves, which currently stand at USD 7,101 million (3.8 months of import cover), continued to provide adequate cover against any short-term shocks in the foreign exchange market.
According to CBK, the number of loan applications and approvals remained resilient, reflecting sustained demand, particularly for working capital requirements.”The banking sector remains stable and resilient, with strong liquidity and capital adequacy ratios. The ratio of gross non-performing loans (NPLs) to gross loans stood at 14.8 per cent in December 2023 compared to 15.3 per cent in October 2023,” read part of a statement by CBK.
“Growth in commercial bank lending to the private sector stood at 13.9 per cent in December 2023 compared to 13.2 per cent in November.”Nevertheless, Thugge reveals that the services sector’s gain was mostly responsible for the economy’s predicted continued strength in 2024.
