CBK Lowers Base Loan Rate

Esther Macharia | Mar 24, 2020

The Central Bank of Kenya (CBK) has lowered the amount of deposits banks must hold with the regulator by the largest margin since mid-2016. The decision, made during yesterday’s MPC meeting, is part of an attempt to boost the flow of cheap loans during this time of the COVID-19 outbreak.

In line with our prediction, the benchmark rate was cut by 100 basis points to propel the policy toward cheap loans.

The Monetary Policy Committee mentioned the regulator reduced the cash reserve by 1-4.25% to allow a release of Ksh 35.2 billion for customers hit by the outbreak.

Patrick Njoroge, the CBK Governor, also announced the lowering of the central bank rate from 8.25% to 7.25%. In addition, it has been decided to lower cash reserve rate to 4.25% from 5.25%, releasing Ksh 35.2 billion to support borrowers during this time.

The COVID19 pandemic paints a grim picture of our economy with the economic growth forecast reduced from 6.2% to 3.4%, the lowest rate since 2008, with industries such as tourism and farm exports expected to be the hardest hit.

Consumer spending is also expected to decline, leading to possible job cuts and forced unpaid leave for thousands of employees across the country, the ultimate result of lower cash floor due to the mandatory social distancing rules.

Ultimately, the present concern remains the health impact of COVID19, duration. Of the crisis and a spike in unemployment numbers.

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