SMEs set to benefit as interbank rates drop

Small and medium enterprises (SMEs) are set to benefit from reduced borrowing costs following a decline in interbank lending rates to a six-month low of 12.922 per cent.

Central Bank of Kenya (CBK) initiatives are expected to lower commercial bank rates.

Financial analyst Peter Macharia, CEO of Jijenge Credit, noted, "A falling interbank lending rate indicates that it is becoming easier to borrow money," suggesting increased economic activity.

Interbank rates, governing short-term loans between banks, are crucial for liquidity management and regulatory compliance.

A rise indicates tighter borrowing conditions, potentially slowing business operations.

"When you borrow money from a bank today, the interbank lending rate formula may impact your interest rate," explained Macharia.

The move follows the CBK's new policy framework aiming to ensure lower lending rates benefit borrowers.

The revised framework aligns interbank rates closer to the central bank rate (CBR) of 13 per cent, reducing the previous 2.5 per cent differential.

"The market for interest rate-based products is expected to become more effective," he said.

Businesses reliant on debt financing may adjust growth strategies in response.

Macharia said borrowing costs could decrease, with banks possibly using the CBK's emergency overnight facility if unable to borrow interbank.