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CBK encouraged to cut benchmark rate to stimulate credit-led economic growth

Elevated non-performing loan ratios continue to delay adjustments

Central Bank Monetary Policy Committee (MPC) has been urged to lower the commercial lending rate downwards in order to spur growth and stabilize the economy.

The Kenya Bankers Association (KBA), analysis of the fundamentals reveals although inflation falls within the recommended level, what is now required is to ease food and fuel prices, and muted demand pressures in the economy.

KBA says that so far, the elevated non-performing loan ratios continue to delay adjustments in lending rates consistent with risk-based credit pricing by banks, thereby constraining credit growth.

“Economic growth slowed to 4.0 per cent in the third quarter of 2024, weighed down by weaker growth in credit, dimmed positive sentiment, and global uncertainties during the period. However, prospects for a stronger recovery have emerged,” KBA noted.

The banking body also noted that the exchange rate remains stable supported by a steady current account deficit anchored on robust remittances and inflows from tourism, and strong official foreign exchange reserves.

In view of these developments, and the growing need to reverse the deceleration in private sector credit, KBA therefore calls for a further cut in the Central Bank Rate (CBR) to provide additional impetus to the ongoing downward adjustments in the commercial banks’ lending rates.

See also  Central Bank MPC meets tomorrow to decide the benchmark lending rates

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