Keep loans affordable amid the inflation fight

The Central Bank of Kenya (CBK) monetary policy committee will be meeting next week to decide on the new benchmark lending rate that usually signals how banks price their loans.

The committee should ensure there is loan affordability to support economic growth amid the need to tame inflation further.

Interest rates continue to edge upward in response to the previous upwards reviews of the benchmark Central Bank Rate (CBR) to 10.5 percent— the highest point in nearly seven years.

This has raised the cost of credit and already this is being felt in the economy. Banks’ loan book slowed to Sh3.975 trillion in July from Sh3.98 trillion in the previous month to mark the first month-on-month decline since December 2021.

The pace of private sector credit growth also eased for the third consecutive month to 10.3 percent in July, the slowest in 17 months.

Only by getting the right balance between interest rates and inflation can the policy makers safeguard economic growth given there have been other shocks such as new taxes.