The Central Bank of Kenya (CBK) has released Kshs. 35.2 billion to commercial banks in an effort to support distressed borrowers owing to the outbreak of coronavirus.
The regulator has also cut interest rates by one percent further easing the burden of loan repayments.
According to CBK’s Governor, Dr. Patrick Njoroge, although the pandemic’s impact on the country economy is still evolving, all signs show that it could be severe.
The Governor held deliberations with the monetary policy committee (MPC) which focused on minimizing the economic and financial impacts. MPC sets the interest rates and also gives policy directions to deal with inflation. The following resolutions were made during the meeting:
- Central Bank rate lowered to 7.25 per cent from 8.25 per cent. This means interest rates will also reduce by the same margin.
- Cash reserve ratio reduced to 4.25 per cent from 5.25 per cent. This reduction will release Kshs. 35.2billion additional liquidity accessible to banks as a result of the disruption caused by Covid-19.
These two measures are aimed at dealing with inevitable loans defaults as Kenyan banks prepare for tough times ahead. Most banks have come up with incentives such as giving loans, bailouts and loan repayments holidays to help businesses remain afloat.
CBK will ensure that the interbank market and liquidity management across the sector continue to function smoothly. Overall inflation is expected to remain within the target range but because of the pandemic. CBK estimates that economic growth will decline in 2020 from a baseline of 6.2 per cent to possibly 3.4 per cent.
According to Dr. Njoroge, the fundamental concerns and anxieties centre on the health impact, job losses and the duration of the crisis. The ongoing interventions by the government are aimed at containing the pandemic and moderating the economic and social impact.
This comes days after the CBK released Kshs.7.4 billion to support government’s efforts towards containing the spread of coronavirus.