The Central Bank of Kenya.[photo/buzzkenya]
Low inflationary pressure informed the Monetary Policy Committee’s (MPC) decision to retain its base lending rate at 10 per cent. This is the 11th consecutive time the team retains the benchmark lending rate.
MPC said inflation, which dropped to 4.5 per cent in December last year from 4.7 per cent in November, is expected to fall further in the short-term. “Month-on-month overall inflation fell to 4.5 per cent in December from 4.7 per cent in November, thereby remaining within the Government target range,” a statement from CBK said.
CBK governor Patrick Njoroge said the decline was due to lower food prices reflecting improved supply of key food items, particularly cabbages, Irish potatoes, tomatoes, sugar and maize flour. He said the foreign exchange market remained relatively balanced supported by strong diaspora remittances, resilient tea and horticultural exports and recovery in tourism.
Njoroge said private sector credit grew by 2.4 per cent in the 12 months to December, slightly higher than the two per cent in October last year. “Analysis of this increase showed strong credit growth to manufacturing, domestic trade, and real estate sectors, which grew by 13 per cent, 10.5 per cent and 8.6 per cent respectively,” said Njoroge.
The retention of the benchmark lending rate comes at a time when the private sector is feeling the strain of poor access to cash to boost their liquidity due to the interest rate capping which was signed into law in September 2016. Following the interest rates capping, Kenya Bankers Association protested citing the ‘laissez-faire’ saying that the country has adopted a free market economy – where there is no state control.
Lack of access to credit has slowed economic growth by a one-point basis. Statistics from Kenya Association of Manufacturers (KAM) reveals that although the aggregate finance for manufacturing has benefited from an increased stock of bank lending from $0.8 billion (Sh82.2 billion) in 2006 to $2 billion (Sh205.5 billion) in 2016.