More expensive loans for borrowers as banks raise interest rates

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Concept of commercial bank lending to businesses and individuals. [iStockphoto]

Kenyan banks have started raising interest rates after the Central Bank of Kenya (CBK) hiked its key interest rate.

Standard Chartered Bank is the latest bank to raise its base rate as banks begin to react to the hike in the central bank interest rate (CBR) from 7 percent to 8.25 percent.

“Dear Client, Standard Chartered Bank’s internal base rate will be revised upwards from 8.5 percent to 9.25 percent effective November 14, 2022. This adjustment will affect your KES loan facilities held with us,” Standard Chartered said in a message to its clients.

NCBA Bank also previously issued notices to its customers informing them of its decision to change its base rate on the shilling-denominated credit facilities from 8.9 percent to 10 percent per annum.

The base rate on the dollar-denominated lending facilities will increase from 8 percent a year to 9 percent a year, the NCBA told customers.

“Consistent with the increase in the Kenya Central Bank (CBR) rate from 7 percent per year in April 2022 to the current rate of 8.25 percent per year and the increase in the United States Federal Funds rate from 0.25 percent per year in From January 1, 2022 to the current interest rate of 3.25 percent per annum, the base interest rates of NCBA Bank for both Kenyan shillings and the US dollar will be adjusted as follows.

The CBK’s Monetary Policy Committee, the highest decision-making body, increased the CBR from 7 percent to 8.25 percent in a bid to fight inflation — a persistent rise in the prices of goods and services in the economy.

MPC also cited heightened global risks and their potential impact on the domestic economy as some of the key reasons for tightening the money supply by raising the benchmark interest rate.

This is the highest CBR since January 2020 and comes at a time when the country is grappling with rising prices for goods and services and a flagging shilling.

CBR is the rate at which banks borrow from the CBK before on-lending to consumers. When the CBR rises, banks tend to raise interest rates on lending facilities.

The hike in interest rates comes at a time when President William Ruto is trying to fulfill his campaign promise of cheap loans to his supporter base, which includes Jua Kali artisans, Boda Boda operators and Mama Mboga, popularly known as the Hustlers .

President Ruto has focused his agenda for the next five years on making credit affordable, particularly for small merchants who have historically had to pay more for credit.

“Affordable credit makes a big difference in the speed of business growth,” Ruto said in a speech at the opening of the 13th Parliament last month.

However, as the CBK fights inflation, the president’s plans for cheap credit could be delayed as the top bank tightens the money supply by raising the interest rate at which it lends to banks.

The tightening of liquidity is expected to have a negative impact on access to credit for individuals and businesses.

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