•In April inflation declined to 5.0 percent driven by lower fuel and food inflation.
•In February 2024, credit grew by 10.3 per cent down from 13.8 per cent in January 2024, all assessed on a year-on-year basis.
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Kenya Bankers Association now want the Central Bank to hold the base lending rate at 13 percent despite the easing of key economic indicators.
The bankers’ umbrella body argues that inflation is within the target range, and inflation expectations appear anchored in the short- to medium term.
In April inflation declined to 5.0 percent driven by lower fuel and food inflation.
A research note by the KBA Centre for Research on Financial Markets and Policy, notes that, ahead of the Central Bank of Kenya MPC meeting next week, keeping the CBR unchanged at 13 per cent would be appropriate
“This would facilitate a complete pass-through of previous monetary policy actions and avert any disruptions that any rate cut may have on the foreign exchange market given projected delays in interest rate adjustments in advanced economies,” said KBA in its research note.
That the MPC’s strategic move was aimed at anchoring inflationary expectations, set a firm downward trajectory for inflation towards the 5 per cent mid-point target, and address residual exchange rate pressures.
KBA says credit growth remains strong, despite concerns of deteriorating asset quality, possibility of interest rates remaining elevated for longer, and the projected impact of the Finance Bill 2024 provisions on the cost of financial services.
The decrease in inflationary pressure suggests a more stable economy, which they argues could be supported by maintaining the current interest rate.
Latest published data shows that private sector credit growth remained on a double-digit growth streak, albeit at a decelerated pace.
In February 2024, credit grew by 10.3 per cent down from 13.8 per cent in January 2024, all assessed on a year-on-year basis.
This was mainly supported by robust growth in the agricultural sector (32.5 per cent), manufacturing (23.1 per cent); transport and communication (16.6 per cent) and trade (12.9 per cent).
In February, the Central Bank of Kenya (CBK) raised borrowing costs to 13 percent, highs last seen nearly 12 years ago, as it moved to contain inflation and half the shilling that was fading at an alarming rate.
The decision effectively gave commercial banks the signal to increase their lending rates, setting up borrowers for a new era of expensive loans.
The umbrella association of banks holds that there is an evident underlying robust economic growth momentum extended from 2023 when the economy grew by 5.6 per cent and enhanced optimism by key economic agents.
It notes that there is a notable favourable improvement and stability in the external sector, as the Kenya Shilling continues to strengthen against the US dollar, supported primarily by favourable macroeconomic fundamentals.
As of 30 May 2024, the shilling averaged Sh 131.87 per US dollar, marking an 18.7 per cent appreciation from its peak of Sh161.36 per US dollar on 23 January 2024.
“The appreciation has been supported by improved macroeconomic fundamentals particularly a narrowing in the current account deficit and resilient remittances (that rose by 24 per cent in April 2024 on year-on-year basis,” it said