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CBK cuts benchmark lending rate to 7% from 7.25%

CBK cuts benchmark lending rate to 7% from 7.25%

The Central Bank of Kenya (CBK) has once again cut the benchmark lending rate to 7 percent from 7.25 percent in March to support liquidity in the wake of the new coronavirus which has continued to weaken the economy.

The Monetary Policy Committee (MPC) held a meeting on Wednesday and argued for an accommodative monetary policy stance even as recent policy interventions continue to filter through.

“The policy measures adopted in March were having the intended effect on the economy and are still being submitted. However in light of the continuing adverse economic outlook, the MPC decided to augment its accommodative monetary stance,” Reads CBK’s statement in part.

The CBK also disclosed that banks had released 43.5 percent of funds or an equivalent Ksh.15.3 billion from the Ksh.35.2 billion released at the end of March from the lowering of the Cash Reserve Ratio (CRR) from 5.25 percent from 4.25 percent.

 “43.5 percent of the funds released to the banking system have been utilized so far, with the tourism, real estate, trade and agricultural sectors being the main beneficiaries,” added the CBK.

A combined Ksh.81.7 billion have been restructured with the biggest sector beneficiary being tourism, restaurants and hotels with a lion share of 31 percent.

Other beneficiaries include real estate at 17.2 percent, construction at 17 percent and trade at 12.4 percent.

The release of the funds came as the banking industry remained agile as asset quality improved with the sector’s gross non-performing loans thinning to 12.5 percent at the end of March from 12.7 percent in February.

Private sector credit meanwhile improved to a high of 8.9 percent in twelve months to March 2020 with growth being more profound in the manufacturing, construction and transport sector.

As Coronavirus continues to spread in the country with 384 cases having been confirmed and 14 fatalities registered, CBK has forecasted the economy to deep in 2020 at 2.3 percent down from its March forecast of 3.4 percent.

“Taking into account the recent growth projections for our trading partners, Kenya’s GDP growth in 2020 is forecast to decline sharply,” reads the statement.

At its meeting in March, the bank cut the lending rate by 100 basis points, and also lowered the cash reserve ratio for commercial banks to 4.25% from 5.25%.

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