Borrowers should brace for costly loans after the Central Bank of Kenya (CBK) raised the base lending rate by two per cent.
This increase pushes the base lending rate to levels last witnessed in the early 1990s and is the highest increase in five years, as the country strives to tame high inflation that closed November at 6.8 per cent.
The Monetary Policy Committee (MPC) increased the CBK rate to 12.5 per cent from 10.5 per cent.
"This will ensure that inflationary expectations remain anchored while setting inflation on a firm downward path towards the 5.0 percent mid-point of the target range,'' CBK said.
Interest rates in Kenya averaged 12.98 per cent from 1991, reaching an all-time high of 84.67 per cent in July 1993 and a record low of 0.83 per cent in September of 2003.
This is likely to see bank rates for some customers hit a high of 28 percent courtesy of risk loan pricing exercised by almost all top banks in the country.
The average cost of loans based on the bank’s online portal that discloses lending charges currently stands at 19.1 per cent, with some borrowers shouldering effective repayment rates of up to 26.5 per cent on a reducing balance basis.
The impact of the extra fees on the total cost of credit is evident on the www.costofcredit.co.ke portal that was created by the Kenya Bankers Association (KBA) and the Central Bank of Kenya to boost transparency of loan pricing.
The higher cost of loans risks locking out businesses from accessing the credit they need for expansion and in turn, limiting their ability to create more jobs.
The MPC says it will closely monitor the impact of the policy measures as well as developments in the global and domestic economy and stands ready to further tighten monetary policy as necessary to ensure price and exchange rate stability are achieved, in line with its mandate.
The committee will meet again in February 2024.
