Lending rate remains at 10%, better weather cited

The Monetary Policy Committee yesterday retained the base lending rate at 10 per cent for the fifth consecutive time. The rate has been unchanged since September last year, forcing commercial banks to price their loans at a maximum interest of 14 per cent, following the introduction of the interest rate cap.
The committee meets every two months to review the base rate, which determines the cost of commercial loans. The Central Bank committee cited improved weather conditions, resulting in lower food prices and sustained macroeconomic stability and continued resilience of the economy.
inflation fell.
Overall month-on-month inflation fell to 9.2 per cent in June from a record high of 11.7 per cent in May 2017, largely due to a decrease in food prices, particularly Irish potatoes, sukuma wiki, tomatoes, cabbages, sifted maize flour, sugar and milk.
“The fall in prices of these key food items reflected the impact of the recent rains and the government measures,” CBK governor Patrick Njoroge said in a statement.
“Non-food-non-fuel inflation has remained below five per cent over the last seven months, suggesting that demand pressures remain subdued.”
The committee also noted that banks’ expectations remain unchanged on account of weaker private sector credit growth and concerns over the forthcoming election.
Growth of credit to the private sector fell to 2.1 per cent over the 12 months to May 2017, partly due to significant repayments in manufacturing, transport and communication and developments in the trade sector.
“The banking sector remains resilient with improved performance indicators. Average commercial banks liquidity and capital adequacy ratios stood at 44.7 per cent and 19.6 per cent, respectively, in June 2017,” Njoroge said.