Pass on rate cuts to productive sectors, Kenyan banks told

Kenyan banks have been urged by the National Treasury to pass on the recent rate cuts to productive sectors in order to sustain growth despite global shocks caused by rising energy prices. Despite the Central Bank of Kenya reducing the Central Bank Rate by 4 percentage points since mid-2024, the average lending rate remains at 14.4%. According to National Treasury Cabinet Secretary John Mbadi, borrowers should benefit more from these reduced rates and lenders should focus on supporting the real economy.

The government is borrowing less from banks, leaving more room in their balance sheets. Mbadi expects this space to go to businesses, farmers, manufacturers, and Micro, Small, and Medium Enterprises. However, inflation has risen to 7.3% in October due to increasing fuel costs, and this could be further exacerbated by the Middle East war disrupting energy supply routes.

Projections by the NCBA Group indicate that Kenya will register 4.8% GDP growth this year and 4.5% next year, due to weak growth in services and industry. The services sector is expected to grow by 4.5%, while the industry will grow by 4.8%, down from 5.3% and 5.2% respectively.

Kenya has shown resilience so far, supported by steady growth, government spending, stable interest rates, and access to domestic and foreign liquidity. Raphael Agung', NCBA Group Director for Global Markets, stated that Kenya needs to target an annual growth of at least 6% to overcome global shocks and create jobs. However, World Bank Division Director Dr Qimiao Fan cautioned that growth vulnerabilities persist, given pressures on public finance and fiscal deficit, stemming from high public debt.

Currently, Kenya's public debt stands at Ksh 13.5 trillion, accounting for more than 70% of the country's GDP. Interest payments consume about one-third of government revenue. NCBA Group projects that Uganda, Rwanda, and Tanzania will outperform Kenya next year, with growth rates of 7%, 7%, and 6% respectively.