By George Obulutsa
In a bold move to boost credit to the private sector, Kenya's central bank has reduced its benchmark lending rate from 12.75% to 12.00%. This decision, announced by the bank's monetary policy committee (MPC), follows a 25 basis-point cut in August, the first in four years. The bank also revised its economic growth forecast for 2024 downwards, citing a slowdown in the second quarter.
The MPC highlighted a significant deceleration in private sector credit and a sluggish growth rate in the second quarter of 2024 as key factors behind the rate cut. This move is aimed at further easing the monetary policy to stimulate economic activity.
Finance Minister John Mbadi recently urged the central bank to lower its lending rate, pointing to a decrease in inflation over the past few months. Inflation dropped to 3.6% year-on-year in September, down from 4.4% in August, well within the government's target range of 2.5%-7.5%.
Prior to the rate adjustment, the Kenya Bankers' Association called for a decisive policy rate cut to support stronger economic growth by boosting private sector credit. The bank has revised its growth forecast for 2024 to 5.1% from 5.4%, with expectations of a rebound to 5.5% in 2025.
Despite economic challenges, Kenya's shilling has strengthened by over 21% against the dollar this year, supported by solid foreign exchange reserves totaling $8.25 billion. This has provided a buffer against potential shocks in the foreign exchange market.
In conclusion, the central bank's rate cut is a strategic move to stimulate private sector credit and boost economic growth in Kenya. Investors should take note of this development as it could lead to increased lending activity and potentially drive economic expansion in the coming years.