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CBK sees credit growth gathering pace

04 June 2013, 18:04 Duncan Miriri

Nairobi - Central bank of Kenya expects commercial lending rates to fall and the pace of private sector credit growth to pick up this year as the economy rebounds from an election-related slowdown, its governor said on Tuesday.

An aggressive tightening of monetary policy to tackle rampant inflation that began in mid-2011, and a slowdown in economic activity ahead of the presidential vote in March saw annual credit growth fall to about 12 percent in February from 35 percent in late 2011.

After the poll's disputed outcome was settled peacefully in court and not violently on the streets as happened five years ago, the government now expects economic growth to accelerate to 6 percent this year from 4.6 percent last.

"As the economy recovers and growth picks up, private sector credit will pick up as well," Njuguna Ndung'u told Reuters.

Ndung'u gave no forecast for the rate of credit growth. Treasury officials said last year that credit growth of about 20 percent could be sustained without threatening economic fundamentals.

In mid-2012, with the shilling stabilised and inflation easing, the Central Bank of Kenya began cutting the key rate from its peak of 18 percent. It now stands at 8.5 percent.

Kenya's biggest firms can borrow at levels close to that, but smaller firms can pay 10 percentage points more, a level they say deters investment and hurts job creation.

When the Central Bank trimmed its key interest rate by 100 basis points in May, banks generally mirrored the move with slight cuts to their own rates. But Ndung'u said he expected more to come from commercial lenders.

"The expectation is that commercial banks' lending rates will decline," the governor said.

Kenyan banks are highly segmented, with different banks catering to various sectors, thus their response to monetary easing is never identical.

Ndung'u said the central bank's monetary policy stance would remain focused on anchoring inflation expectations. 

- Reuters

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