The government through the Central Bank of Kenya (CBK) has announced new lending rates to be 12.5%,an increase from the previous 10.5% that was used to calculate interests for lenders.
CBK has laid blame on the exchange rate depreciation which it said was exerting upward pressure on domestic prices and the rising of public sector external debt service. The move according to CBK will curb inflation and support the depreciating shilling.
The move will however take more pinch to borrowers who will have more to pay in terms of interests accrued. This puts more pressure to the cost of living as kenyans plan to pay more taxes, increased loan rates and levies that have been introduced by the government.
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In a notice released by Monetary Policy Commission (MPC), they cited the need to control the weakening shilling against the dollar which has increased deby servicing costs and increased imports spending. This decision however goes against the bankers who adviced the MPC to keep the rates at 10.5%.
“The MPC noted that exchange rate depreciation continues to exert upward pressure on domestic prices thereby increasing the cost of living and reducing the purchasing power. The MPC therefore concluded that there is need to adjust the monetary stance to address the pressure on the exchange rate and mitigate second round effects including from global prices.”
However, statistics show that the Non-Performing Loans(NPLs) which are the defaulters are on the rise in the past three months. This was before the hike by the CBK.
With the increase in lending rates, the defaults are expected to go higher as kenyans continue to struggle to make ends meet.
Kenya Bankers Association have warned about what the increase will mean to the market.
“A further rate hike to tame potential inflationary pressures if fully implemented by banks will further escalate credit risks in the market and build up in non perfoming loans (defaulters) which will therefore affect the industry’s stability.”