Kenyan banks are set to reduce lending rates starting December 2024, following pressure from the Central Bank of Kenya (CBK). The move comes in the wake of the CBK’s Monetary Policy Committee slashing the benchmark rate by 75 basis points to 11.75%, marking its lowest level since the COVID-19 pandemic.
The adjustment seeks to address the growing disparity between the Central Bank Rate (CBR) and commercial lending rates, which reached a 31-month high in October. The spread between these rates widened to 5.15%, with average interest rates climbing to 17.15% in October from 16.91% in September.
CBK Governor Kamau Thugge has urged banks to align their rates with the recent reductions, emphasizing the need for fairness and warning of potential economic consequences if adjustments are delayed. “All we are asking is for banks to be fair and to act in the same way that they were quick to raise lending rates when the policy rate was increasing and the treasury rates were increasing,” he stated. “If they continue on this path, it will be a no-win for anyone, and the economy will not be able to perform.”
The Kenya Bankers Association (KBA), representing 43 banks, announced plans to lower loan interest rates, acknowledging the regulator’s concerns over how high rates have hampered private sector growth. According to a KBA statement, “Banks are taking steps to lower interest rates and make borrowing more affordable. Individual banks are issuing the requisite notices to customers indicating reductions in loan rates from December 2024, and these reductions will continue progressively in line with the evolution of monetary policy.”
However, KBA also called for more substantial reductions from the CBK, arguing that larger cuts would better stimulate lending and economic growth.The shift in rates is expected to ease access to credit for borrowers, with hopes that it will unlock private sector potential and promote broader economic recovery.
