Central Bank of Kenya. Photo | Courtesy.
A majority of lenders have defied the Central Bank of Kenya’s (CBK) directive to lower loan interest rates, despite a recent 2.3 percent cut in the base lending rate aimed at easing the cost of borrowing.
According to financial market report, only five banks complied with the CBK’s directive on lending rates, while 14 others maintained higher rates.
This move has raised concerns among borrowers and economic analysts, who argue that it undermines efforts to spur economic growth and make credit more affordable.
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The CBK had in February lowered the benchmark rate in an effort to stimulate lending and investment, following a challenging economic period marked by high inflation and a slowdown in credit uptake.
The CBK’s Monetary Policy Committee (MPC) lowered the Central Bank Rate (CBR) to 10.75% in February 2025.
The MPC also reduced the Cash Reserve Ratio (CRR) to 3.25 percent.
The reduction in CRR was anchored on freeing up liquidity for banks to lend, potentially leading to increased borrowing and economic growth.
However, the reluctance of most banks to align with the directive suggests that financial institutions are prioritizing profitability over monetary policy goals.
“When the central bank raised the policy rate, banks were very quick to raise their lending rates,” CBK Governor Kamau Thugge lamented in the post-MPC brief in December.
“All we are asking for is for banks to be fair and act in the same way by reducing interest rates as soon as possible.”
The decision by banks to maintain high lending rates could put additional pressure on businesses and households already struggling with high living costs.
Industry players are now calling for stricter oversight to ensure that monetary policy adjustments translate into actual benefits for borrowers.
