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Bank interest to stay high as CBK retains key rate

Bank InterestThe Monetary Policy Committee (MPC) on Tuesday retained the policy rate at 9.50 per cent in a decision that is likely to stop the downward drift of banks’ lending rates.

The MPC said that the retention was advised by the requirement to avoid the risk of resurgent inflation as the current account stayed high.

The committee maintained the Central Bank Rate (CBR) at the same level referring oil prices and Kenya’s growth opportunities being under threat from the Eurozone recession and the slow recovery in the U.S.

This was the first retention of the rate since last July when the MPC began a series of cuts that was meant to bring down the lending rates in a soft economy.

The MPC chairman, Njuguna Ndung’u, stated in a press statement after the meeting, that there was also need to allow the earlier rate decisions to work through the economy.

The CBR was to bring down the rate to 9.50 per cent from the November rate of 11 per cent. The rate stood at 18 per cent last July and at which it had been retained since December 2011, and was increased towards the end of 2011 following inflation and exchange rate upheaval.

Prof Ndung’u said the committee had detected that there were risks to the macroeconomic attitude. These could be ascribed to the renewed upward trend in international oil prices and a frail outlook for the global economy with the possibility of a more marked recession in the Eurozone and a slow recovery in the United States economy.

He also said that the outlook, along with the continuous pressure of the balance of payments due to the high current account deficit remained a menace to the general stability of prices.

The MPC said the with a series of CBR reductions, there had been an enhanced intake of credit. It added that there was a 13.8 per cent increase in the number of loan applications between December 2012 and January this year.

Prof Ndung’u stated that the annual growth in the private sector credit went up from 10.42 per cent in December 2012 to 11.95 per cent in January this year. The credit increase during the period was within the programmed growth track and was dispensed across the key parameters of the economy.

The MPC further said that the banking sector remained ‘solvent and resilient’ after taking into consideration available data and doing stress tests on commercial banks.

In spite of the growth in the quantum of advances, the ratio of gross non-performing loans to total loans went up marginally from 4.5 per cent in December 2012 to 4.6 per cent in January 2013, an indication that credit risk in the banking sectored remained low.

Image courtesy: FreeDigitalPhotos.net

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