Commercial banks in Kenya are set to reduce lending rates starting December 2024, following pressure from the Central Bank of Kenya (CBK). The recent decision by the CBK’s Monetary Policy Committee to lower the benchmark rate by 75 basis points to 11.75% is the lowest level since the Covid-19 pandemic.
Despite multiple rate cuts, there has been a widening gap between the Central Bank Rate (CBR) and lending rates, reaching a 31-month high. Concerns have been raised about the slow implementation of monetary policy changes to customers as the spread between CBR and commercial lending rates increased to 5.15% in October.
The CBK Governor has urged banks to align lending rates with the recent reductions in CBR to avoid negative impacts on the economy. Banks have been reminded to act fairly and adjust lending rates accordingly to support economic performance.
The Kenya Bankers Association (KBA) has announced that its member banks will begin reviewing loan interest rates to provide more affordable credit options. This decision comes after warnings from regulators about the negative effects of high interest rates on private sector growth.
KBA stated that banks are taking steps to lower interest rates and make borrowing more accessible following the successive cuts in the Central Bank Rate. Individual banks will notify customers of reductions in loan rates starting from December 2024, with further adjustments expected in line with monetary policy developments.
While KBA appreciates the rate cuts, they are advocating for more substantial reductions from the CBK to effectively stimulate lending and promote economic growth.