Nairobi — The Central Bank of Kenya (CBK) has called on commercial banks to urgently reduce their lending rates in a bid to stimulate economic activities and provide relief to borrowers.
Speaking during a press conference, CBK Governor Kamau Thugge underscored the importance of swift action by banks to align their interest rates with current market conditions.
He revealed that late last month, he convened a meeting with the Chief Executive Officers of major banks to address this issue directly.
“We had a meeting with the CEOs of banks, and I do believe that they now understand the urgency to aggressively lower the interest rates that they charge to consumers,” Thugge stated.
The Governor noted that the factors contributing to elevated lending rates had significantly shifted.
The 91-day Treasury bill rate, which had surged to around 16% in recent months, has now dropped to 10.45%. This marked decline, he explained, has lessened the pressure on banks to offer high deposit rates to attract funds.
“The treasury bill rates had attracted depositors, leading to some movement from the banks to treasury bills. Consequently, banks raised their interest rates on deposits to compete, which increased their cost of funding. This cost was then passed on to consumers in the form of higher lending rates,” Thugge elaborated.
With the Treasury bill rates now lower, Governor Thugge emphasized that banks have the opportunity to reduce their funding costs.
He urged financial institutions to prioritize channeling more credit to the private sector rather than focusing on government lending.
This shift, he argued, would stimulate economic activity and support job creation, especially in sectors that have been struggling with limited access to affordable credit.
“It is imperative that banks act swiftly to adjust their rates. Reduced lending rates will enable businesses to access affordable financing, thereby boosting productivity and creating employment opportunities for Kenyans,” Thugge said.
Data from the CBK indicates that credit to the private sector grew at a sluggish rate of 13.2% in the past quarter, far below the desired target to spur meaningful economic growth.
High interest rates have stifled their ability to borrow, expand, and contribute to the economy. Lower lending rates would therefore have a cascading effect on economic resilience.
Former CBK Governor Patrick Njoroge also weighed in on the issue, pointing to the need for greater collaboration between banks and the regulator to ensure that monetary policy changes translate into tangible benefits for consumers.
“The transmission mechanism of monetary policy requires trust and efficiency. When rates go down, consumers and businesses should feel the relief immediately. That is the only way to ensure that economic gains reach all levels of society,” Njoroge said in a past interview.
Governor Thugge’s push aligns with the government’s broader economic strategy to curb inflation, stabilize the shilling, and foster sustainable economic growth.
The CBK has consistently highlighted the importance of a well-functioning credit market in achieving these goals.
As the banking sector reviews its pricing models, all eyes will be on the upcoming Monetary Policy Committee meeting, where further measures may be discussed to incentivize compliance with lower lending rates.
