CBK’s interest rates move good; let’s now see action

NAIROBI: The Central Bank of Kenya on Monday maintained its benchmark interest rate at 11.5 per cent, saying current monetary policy measures have helped tame inflation. It said inflation eased to 6.8 per cent in February, from 7.8 per cent in January.

This was unlike last year when the regulator, through its Monetary Policy Committee, lowered the base lending rate, commonly referred to as the Central Bank Rate (CBR), to 8.5 per cent, in an attempt to drive lending rates down and spur economic growth.

Despite that, most commercials banks maintained high lending rates, thus discouraging potential borrowers.

The MPC reported on Monday that the average lending rates by commercial banks had declined to 17.9 per cent in February, from 18.3 per cent in December 2015.

It noted that banks should reduce their operating costs and enhance transparency in the pricing of credit.

"In this respect, the CBK has commenced the quarterly publication of individual banks' lending rates across loan categories and maturities," it said.

This is a good move that could help boost mortgage uptake among Kenya's working class who aspire to own homes, but can't afford them due to high prices and exorbitant lending rates. Most banks are currently charging over 18 per cent in interest rates; some are charging over 20 per cent.

It is noteworthy that these pronouncements from the regulator are coming at a time when Parliament is discussing amendments to the Finance Act, which if passed, would lead to interest rate caps. If that happens, commercial banks would charge interest rates only up to a specified limit.

Whether or not a free market economy like Kenya needs regulated interest rates is a matter for another day, but the need for reasonably lower interest rates is urgent.